In its customary aim to appease readers the media loves
to mock the notion that “corporations are people too”. Well I have to differ,
not surprising, but not in way that might be assumed. My perspective is of the
corporation as an entity, which lives and dies on its financial health fed by
people who contribute to its success and to people who consume its output. And
while so much can be said about our culture and its embrace of capitalism, the
truth, as I see it is in that consumption has been the historic fuel of
economic growth. And in that regard the consumption, or expenditures, of
corporations on their products, their people and their communities are just
like people, especially Americans, who like to buy stuff. Therefore the next
time you seen the acronym ‘CAPEX’ or capital expenditures, that company just might
be doing the right thing.
One of the most interesting developments of the past 20
years of economic growth led by technology has been the number of companies
that engage in what I call excess CAPEX. Namely, the pursuit of changing the
existing world which requires the average geek to return to the drawing board,
over and over again. Amazon (AMZN) the e-commerce company, is one of more
familiar companies that is often assailed by industry analysts as practically
reckless in its spending of nearly all available revenue. This is especially
offensive to the older analysts who believe that companies can spend as much as
they like as long as they return something back to the investor (shareholders)
either in their stocks growth or in the form of a dividend. Amazon has built an
empire as first a bookseller, than a music seller, than a seller of nearly
everything else and thereby making it every type of retail business rolled into
one internet juggernaut. Great, right? Maybe. Over the years the massive amounts
of revenue that have been generated have been plowed into food trucks, phones,
drones and media productions, while taking on nearly every industry from auto
production to space exploration. Other companies such as Google (GOOGL) which
we all know generates massive revenue from selling ads on its search platform.
The real surprise is instead of precious dividends to the patient shareholders
the company invests in cute, but less than promising endeavors such as Google
Glass, Driverless Cars and Robots (I do like Robots though). At the same time
it has the audacity to give away its operating system for cell phones called
DROID in return for the data it needs to sell to advertisers. And I won’t even
go into Facebook (FB) the social networking website company who gives even less
back to the shareholders in favor of eye watering expensive investments (i.e.
$19 billion) in companies that probably no one over 16 years old has ever heard
of.
But I believe the founders and managers of these
companies do have a vision. Jeff Bezos’s tried everything he can think of and
can put up with the cost, and I respect that. Probabilities suggest that he and
Sergey Brin and Larry Page of Google or Mark Zuckerberg (age 30) of Facebook
have the time to eventually hit on the next big thing. And whether they can
manage the inevitable growth and the global political and regulatory
interference that comes with their industry the shareholders will decide if the
stock grows exponentially to their vision. If not, than like Apple (APPL) and
Microsoft (MSFT) before them they will eventually declare a dividend to
reassure the shareholders who are often loyal consumers of their products. And
loyalty should always be rewarded even if it’s not the economic behavior we’re
used to. I for one am having a blast finding out. Long live the consumer, long live CAPEX!
