(Excerpt from Last Man Standing by Morgan Housel)
Jeff Bezos had a different view: Margins don’t matter. Dollars do. A huge business with low margins was preferable to the opposite. He explained in 2014:
Margins are not one of the things we are seeking to optimize. It’s the absolute dollar free cash flow per share that you want to maximize.
Free cash flow [is] something that investors can spend. Investors can’t spend percentage margins … What matters always is dollar margins: the actual dollar amount. Companies are valued not on their margins, but on how many dollars they actually make.
There are parts to quibble with here, but I just liked Bezos’s simple logic: The business with the most dollars wins. Not the best margins or the highest quarterly growth. Just how many dollars you generate over the long run.