Our ultimate financial measure, and the one we most want to drive over the long-term, is free cash flow per share.[1]
macro: optimisticcapital: holdingframing: partnersstyle: academiccandor: balanced
Topic map
Numbers
| Metric | Value |
|---|---|
| Free cash flow | $477 million[6] |
| Inventory investment | $480 million[7] |
| Sales base | nearly $7 billion[8] |
| Fixed asset investments | $246 million[9] |
| Fixed asset investments as % of sales | 4% of 2004 sales[10] |
| Share count change (last three years) | down 1% over the last three years (last three years)[11] |
| Potential future dilution eliminated | eliminated over six million shares of potential future dilution[12] |
| Net cash provided by operating activities | net cash provided by operating activities of $567 million[13] |
| Purchases of fixed assets | purchases of fixed assets, including capitalized internal-use software and website development costs, of $89 million[14] |
Notable quotes
a company can actually impair shareholder value in certain circumstances by growing earnings
EBITDA isn’t cash flow.
Discerning investors don’t stop with the income statement.
when "forced to choose between optimizing GAAP accounting and maximizing the present value of future cash flows, we'll take the cash flows."
Lessons
- a company can actually impair shareholder value in certain circumstances by growing earnings[19]
- one cannot assess the creation or destruction of shareholder value with certainty by looking at the income statement alone.[20]
- EBITDA isn’t cash flow.[21]
- Cash flow statements often don’t receive as much attention as they deserve. Discerning investors don’t stop with the income statement.[22]
Capital actions
repaying more than $600 million of convertible debt that was due in 2009 and 2010debt-paydown[23]
Entities mentioned
People
Companies
Prior predictions revisited
- ✓ 2003: “relentlessly driving the “price-cost structure loop” will leave us with a stronger, more valuable business” — This letter reports free cash flow growing 38% to $477 million and fixed assets at only 4% of sales, evidencing the stronger, more capital-efficient business the prior letter predicted.[24]
Predictions
- We are confident that if we continue to improve customer experience—including increasing selection and lowering prices—and execute efficiently, our value proposition, as well as our free cash flow, will further expand. (long)[25]
vs. 2003
Added: Free cash flow per share as the explicitly named ultimate financial measure, with a detailed hypothetical illustrating earnings vs. cash flow divergence[26] · Debt paydown and dilution management[27]
Dropped: Price-cost structure loop framing · Customer experience narrative examples (e.g., negative reviews)
Anecdotes
- Bezos presents a hypothetical entrepreneur who invents an expensive passenger-transport machine and grows earnings rapidly by adding capacity, illustrating that strong earnings growth can mask deeply negative cumulative free cash flow when capital expenditures are ignored.[28]