But there is more to Amazon than online sales. Its cloud computing unit, Amazon Web Services, saw a 37 per cent rise in revenue and a 59 per cent jump in operating income, which more than compensated for weakness elsewhere.
Each start-up today will have a different game plan. But cash generation should be at the heart of their survival kit.
FOCUS ON THE PLAYING FIELD
Looking back at the dot-com era, perhaps the mistake that many investors made wasn’t that they believed the Internet would change everything, but that they underestimated just how big the Internet would become 20 years later.
In 1997, Amazon’s share price was US$1.70. It rose to US$107 in 1999 before losing 85 per cent of its value just two years’ later. Today, the shares are worth over US$2,000 apiece. But for every Amazon, there were lots of dot.com wrecks.
That said, nobody could have predicted in the 2000s that the Internet would become the backbone of our economy and lifestyles, powering the way we work, shop, and transact. Even if investors saw the potential of Internet companies then, it still took 15 years for Nasdaq to regain its pre-dot-com glory.
For tech entrepreneurs today, patience and focus are key. Warren Buffett famously said games are won by players that focus on the playing field and not on the scoreboard. This is why tycoons like Forrest Li losing billions is par for the course.
Today’s disruptive companies need to hunker down and focus on cash generation rather than be fixated with their share price. Without cash they will not be able to survive and capitalise on the opportunities new digital technologies could bring.
David Kuo is Co-founder of The Smart Investor and former CEO of the Motley Fool Singapore.