Monstrous sales and roaring stock, but no profit

Amazon’s dilemma: company’s stock at a record high, but no significant profit made

SAN FRANCISCO — Nearly every day, Amazon announces a new venture.

It just bought an online education company and introduced a payment mechanism for Internet retailers that competes with PayPal. It started selling wine for the first time in New York, updated its line of tablets, gave the go-ahead to three new comedy pilots and began a design competition for its fashion division. It is setting up mini-warehouses inside suppliers like Procter & Gamble to ship goods faster.

But one thing it will not be announcing this month: a significant profit.

Who cares? Amazon lost money in 2012, and analysts are anticipating another loss when the company releases its third-quarter results Thursday. Yet the stock is at a record high.

Amazon shares are up around 150 percent since mid-2010, which perhaps not coincidentally was the last time the company had sizable profits. In other words, investors only really decided they loved the company when net income began to slide.

“This isn’t supposed to happen,” said William H. Janeway, an economist and venture capitalist. “It violates mainstream finance theory. Very few companies have been valued this way outside a systemic bubble.”

No one is asserting that Amazon is a flat-out bubble, but there is an increasingly noisy debate about when it will — or even whether it can — deliver the sort of bottom-line profits investors normally demand from a company expected to post $75 billion in revenue this year.

The company declined to comment.

Some analysts point out that those sales are negligible when set against the market being targeted by Jeff Bezos, Amazon’s founder and chief executive. “The market is effectively limitless: all of global consumer commerce and maybe business-to-business commerce as well,” said Janeway, author of “Doing Capitalism in the Innovation Economy.”

With that prize as the goal, making money today would be a positive hindrance. As Benedict Evans, an analyst based in London, put it: “Bezos has chosen to run Amazon to be the biggest, most powerful and successful retailer on Earth 20 years from now. Any fool could run it profitably today.”

To make a significant profit, some ways of doing business will have to change, which might alienate customers and slow that roaring revenue growth. That, in turn, would cause investors to demand profits even sooner.

“At some point, the piper must be paid,” said George Colony, chief executive of Forrester Research.

How? “By raising prices. I don’t see any other way.”