Monopolies can be good if you own one. Here's how to get there.

Posted by David Siminoff on 11/15/18 4:08 PM
David Siminoff

They switched mailing addresses. Headquarters. The dazzling headline was basically "About A Third Of The Top 500 Execs Are Moving To The East Coast" - and a sub-titled "Into Two Buildings". That was more or less the crux of the story. Huge screamy national news. Sorta of the same global import as the Normandy Beach storming, right? 

That's how big Amazon has become. That's how powerful they are. Are they a monopoly now? Are they that good? ("Yes, monopolies are in fact good if you own one." - Bill Gates) But of course they're not a monopoly .. yet. Maybe they have a call option on being one. David Faber is even threatening to do a story on them: The Amazon Generation (when he produced for CNBD The Wal Mart Generation, it was within 5 minutes of WMT's peak).


amazon monopoly flashback - Jeff Bezos 1990
Jeff Bezos at Amazon's headquarters 20 years ago.

With such magnanimity then, it's probably a good time to think about the mid-late 1990s and AMZN's IPO in May of '97, brought public by sell side analyst Bill Gurley (Benchmark Venture Capital), now storied for having funded then fired Travis.com, founder of Uber. History books are written by the winners so it's likely that a lot of people forget what a joke AMZN was at its IPO. 

I was there for it. I was in the room for the meetings with Jeff and the other players. I was friends with Joy (early CFO), may she rest in peace. The IPO came barely subscribed, meaning that the underwriters had a weak book or weak under-subscribed demand from buy side institutional investors who hated Jeff. He had this weird high pitched laugh when he was nervous and as a new CEO he was nervous ... a lot. 

Perhaps more nervey was the fact that his business at the time was solely as a bookseller - in fact, he sold a book for 10 bucks that cost him 15 (he gave a lot of that dough to Yahoo thanks to my wife's role there in running business development at the time). The Riggio family openly derided him and his lunacy and did what they could to compete. They didn't. (They're the super-voting stock controllers of Barnes & Noble, cousins of Sears, Toys R Us, Blockbuster and soon many others to get Amazon'd along the way.) The buy side who dumped his shares which came public at $18 and sloughed to $12 quickly - institutions laughed about his losing 5 bucks a unit - and then furthered that "he'd make it up in volume". 

The stock traded down such that it had about $150 million of newly raised cash and other assets that were liquid-ish; and fell to a market cap of about $300 million and change. That is, Wall Street at the time valued the equity value of AMZN at about $150M... the price of a C-Round company today with $10M in revenues in Sil Valley. There aren't many times in real life when a simple, small, blue-collar public investor can just buy a stock on the exact same terms as Joe the Plumber, Sally Sixpack and Warren Buffett. Thousand baggers are ... rare.

But had you been paying attention you could have made 1,000 times your money. Had you bought $10,000 worth of AMZN a week after its IPO, and kept it as part of a long term marriage-like commitment to a vastly cool idea, you'd have over $10 million today. Unlike many hot venture-capital-funded companies today, AMZN's era had relatively little regulation and grief from ambulance chasing lawyers in expensive suits, fighting for the pilot light $6.3 million nuisance suit settlements. 

So AMZN came public very early in its history and let the public ride its value upwards. Like Yahoo and AOL and MSFT. Joe Sixpacks by the thousands made small or large fortunes on the back of AMZN's spectacular growth.

i feel amznContrast today's world where companies hide from the grief, hassle and annoyance of being public and instead take their funding from legions of private investors, only to come public after they have gone from being worth nearly zero to valuations in the tens or even hundreds of billions of dollars. And it shouldn't shock that most of the private investors who took that initial huge ride are the already-wealthy. 

You can't blame those companies for trying to grow with fewer outside influences - but do some math on the vast wealth opportunities lost to the normal investing public because of this choice to remain private so long. "For every action, there's an equal and opposite set of stupid laws with unintended consequences that government officials promulgate..." Or something like that. I think it was Newton. Not the fig. 

So that's AMZN today. They moved offices. Or rather, added two. And it's national headlines, web-jamming search traffic, and protests from Congresspeople with nothing better to do. Next time you meet a short, edgy guy with a weird high pitched laugh, ...ask him all about being Prime. 

Topics: Finance

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