But Amazon is not limited to online sales. Its cloud computing unit, Amazon Web Services, saw a 37% increase in revenue and 59% in operating profit, more than offsetting weakness elsewhere.
Every start-up today will have a different game plan. But cash generation should be at the heart of their survival kit.
FOCUS ON THE PLAYGROUND
Thinking back to the dot-com era, perhaps the mistake many investors made was not that they believed the internet was going to change everything, but that they underestimated just how much the internet would become 20 years later.
In 1997, Amazon’s stock price was $1.70. It rose to US$107 in 1999 before losing 85% of its value two years later.. Today, the shares are worth more than US$2,000 each. But for every Amazon, there were plenty of dot.com wrecks.
That said, no one could have predicted in the 2000s that the internet would become the backbone of our economy and our way of life, powering the way we work, shop and transact. Even though investors then saw the potential of internet companies, it still took 15 years for the Nasdaq to regain its pre-dot-com glory.
For today’s tech entrepreneurs, patience and concentration are essential. Warren Buffett said games are won by players who focus on the playing field, not the scoreboard. This is why tycoons like Forrest Li lose billions is normal.
Today’s disruptive companies need to hunker down and focus on generating cash rather than obsessing over their stock price. Without cash, they will not be able to survive and take advantage of the opportunities that new digital technologies could bring.
David Kuo is co-founder of The Smart Investor and former CEO of Motley Fool Singapore.