Many of us have a strong interest in the orderly expansion of Minnesota's economy. With respect to Amazon's search for a second-headquarters location, however, some important questions should be explored before Minnesota neglects other opportunities to focus on preferential subsidies for the retailing giant.
1. Is Amazon's profit recipe sustainable over the long term?
2. Does Amazon have an established track record of being good for employees, customers, suppliers, business partners and the communities in which they reside?
Amazon is a very large, minimally profitable company, whose fortunes depend upon a long list of anticompetitive practices and the systematic avoidance of taxes wherever possible. In the second quarter of 2017, Amazon's revenue was nearly 25 percent larger than one year earlier. That's impressive, but profits declined 77 percent. Net profits were one half of 1 percent of revenue, compared with 20.2 percent at 3M. The highest rate Amazon ever earned in any quarter was 1.8 percent.
Amazon has a tangible net worth of $18.96 billion, of which $19.13 billion was supplied by shareholder investments. Thus, more than all of Amazon's tangible net worth has been contributed by shareholders, rather than accruing because of company operations.
It is certainly true that Amazon has been a darling of the stock market in recent years, but huge explosions in stock values have happened before with many companies. Enron, Hudson Motor Car, Lionel, WorldCom, Global Crossing, Stutz Motor and others were all darlings of the stock market at one time or another.
Yet there is no guarantee that a darling of the stock market in one year will be an asset to the community in the next. In 2006, Citigroup stock was $545 per share. Three years later, it was $40 — a decline of 93 percent, with mammoth layoffs and restructurings.
Amazon's price-to-earnings ratio is 241. 3M's is 24. Amazon's stock price might someday reach a normal valuation, which could precipitate an enormous decline in the price of its stock and thus curtail the company's dominant source of cash — shareholder investments.