The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google

by Scott Galloway

Thanks to a rate of growth that reflects a steady march toward this vision, the market bids Amazon stock higher and provides the firm with exceptionally cheap capital. Most retailers trade at a multiple of profits times eight.48 By comparison, Amazon trades at a multiple of forty.49 In addition, Amazon has trained the Street to hold them to a different standard—to expect higher growth but lower profits. That enables the company to take the (substantial) incremental gross margin dollars it earns each year and plow more capital back into the business—and avoid that whole tax thing. And that in turn funds the digging of deeper and deeper moats around the business. Profits are to investors what heroin is to an addict. Investors love profits, I mean really love them. Yes, invest, grow, and innovate, but don’t dare get in the way of me getting jacked up on skag (profits). Amazon’s revolutionary timeline of capital allocation is what has been preached for generations in business school—total disregard for the short-term needs of investors in pursuit of long-term goals. A company that does this is as rare as a young adult who skips prom to study. Normal business thinking: If we can borrow money at historically low rates, buy back stock, and see the value of management’s options increase, why invest in growth and the jobs that come with it? That’s risky. Amazon business thinking: If we can borrow money at historically low rates, why don’t we invest that money in extraordinarily exp...

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