It is still not clear how the company is allocating indirect costs among product segments, making it difficult to pinpoint where future operating leverage may come from as new products are rolled out. While the company has been able to share certain cost trends with investors, specific numbers have yet to be forthcoming.
While operating efficiency is important, it will take significant revenue growth over the next several years to bring optimal leverage to Amazon's scale-driven model, and revenue growth will be increasingly difficult to achieve.
I think all of the measurement techniques are kind of up in the air right now. But the industry itself, it's still relatively new and still growing relatively quickly. In the overall scheme of things it's not that big, so it doesn't surprise me that Q1 sales are kind of flat.
The company faces market value risk in the shares it holds in its partners as well as collection risk on long-term contracts. This quarter, those risks began to be realized.
This is a business that scales with volume and with revenue slowing significantly, it gets more difficult to actually reach scale.
With the company running at only 30 percent to 35 percent of capacity, and given a business that scales with volume, this must be a revenue story. More efficient operations can only take you so far.