Power Players

Why Jeff Bezos never doubted Amazon — even when its stock fell to $6

Jeff Bezos, founder and CEO of Amazon, speaks to a group of Amazon employees that are veterans during an Amazon Veterans Day celebration on Monday, November 12, 2018.
Leonard Ortiz | Digital First Media | Getty Images

After Amazon earnings missed Wall Street expectations on Thursday, the stock took a major hit.

But it's unlikely you will find Amazon CEO Jeff Bezos stressing over the company's day-to-day stock price.

Since his first letter to shareholders in 1997, Bezos has emphasized his belief that "it's all about the long-term."

"We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions," he said in his 1997 letter, setting a precedent for the future at Amazon.

After the company went public in May of 1997, Bezos encouraged his employees to ignore the highs and lows of the company's stock performance. According to the Amazon CEO, the company's fixed cost business model would bring long-term success, and he was correct.

"We had gone public on a split-adjusted basis, $1.50 a share in today's terms, and the market became very quickly an internet bubble kind of market," Bezos said at the Bush Center Forum on Leadership in 2018. "The stock prices went up very, very high."

But even when the stock went far down, Bezos said he always "preached" to employees at all-hands meetings, telling them to not worry.

"I liked our business, and I liked the fundamentals of our business, but I also knew that the stock price was disconnected from what we were doing on a day-to-day basis," he said at the forum.

Jeff Bezos, founder and Ceo of Amazon
Paul Souders | Getty Images

Bezos would frequently quote famous investor Benjamin Graham, who was Warren Buffett's mentor and idol, when reminding employees and shareholders about Amazon's long-term goals.

"I would say, 'look, we got to remember the great quote from Benjamin Graham: In the short run, the stock market is a voting machine, in the long term, it's a weighing machine,'" Bezos recalled at the forum. "'So don't think about the daily stock price.'"

Since the beginning, Amazon employees had stock options, and he did not want them to measure success with stock price.

"I said, 'look, when the stock is up 30% in a month, don't feel 30% smarter, because when it's down 30% in a month, then you're gonna have to feel 30% dumber, and it's not gonna feel as good,'" Bezos recalled at the forum.

During the dot-com crash, Amazon had a "brutal year," as Bezos said in his letter to shareholders in 2000. Shares were already down 80% from the previous year at the time he wrote the letter, but he still wrote that "the company is in a stronger position now than at any time in its past."

"It was good that I laid that groundwork, because in the year 2000, the whole thing came tumbling down," Bezos recalled at the forum. "The stock went down to $6" in 2001.

Despite this drop, Bezos never doubted Amazon's business model.

"I had all the internal metrics on how many customers we had and I could see," he said at the forum. "People thought we were losing money.... I just knew it was a fixed cost business, and as soon as we reached a sufficient scale, we would have a very good business."

Knowing this concept, according to Bezos, was what kept him calm during the ups and downs.

"That understanding of the fixed nature of our expenses, relative to physical retail, is what led us to have the 'get big fast' strategy. We knew that our economics would be improved if we had sufficient scale," he said.

Amazon has a current market capitalization of over $850 billion.

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