The Upside for AMZN Stock
Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos is unlike any other executive on the planet. AMZN stock trades at hundreds of times its earnings, yet the man is pushing his company past what any other business could do.
Jeff Bezos is merciless in business. He wants Amazon to win at everything, to conquer and pillage every industry. That’s precisely what the company’s latest move is all about.
He’s on the brink of another major expansion and history suggests it could only drive AMZN stock higher. The company grew famous for disrupting the publishing industry, then moved onto Web services. The latter is by far Amazon’s most profitable division.
In fact, “Amazon Web Services” is the sole reason the company turned profitable in the second half of 2015. Under normal circumstances in a normal company, investors would pressure management to narrow in on that business line. But this is Amazon.
Jeff Bezos does what other CEOs can’t afford to do. He’ll probably funnel those profits into new business lines, rather than hand them back to shareholders.
And they’ll love him for it.
What Does Bezos Have Planned Next?
Dominance is Amazon’s operating style. In taking over the retail market, the company simply made razor-thin margins (or sometimes a loss) to drive out competition. Amazon would only start edging up its prices after the company accrued enough market share.
But this new business line really takes the cake. A recent report suggests that Jeff Bezos is going to open hundreds of physical bookstores. No, you didn’t read that incorrectly. Amazon is going to open brick-and-mortar bookstores like the ones it’s been driving out of business. (Source: “Amazon plans hundreds of physical bookstores: WSJ, citing mall CEO,” CNBC, February 2, 2016.)
Its first store is already active. It opened in Seattle at the start of November and I’ve started to understand the brilliance in Amazon’s move. The company is imitating a strategy that’s proven successful for Apple Inc.
Think of an Apple store. You can wander in and test out the latest “iPhone,” “iPad,” or “MacBook” at your leisure. Amazon has the “Kindle,” “Kindle Fire,” and “Kindle Echo.” Couldn’t it also benefit from a demo store?
Customers don’t actually have to buy the items in the store; it just has to deepen their connection to Amazon’s brand. Of course, the entire project would likely plunge Amazon back into the red. The upfront costs of 300 to 400 stores would decimate the firm’s cash flow.
And yet those warnings have never stopped Jeff Bezos before. He’s proven the bears wrong time and time again, so maybe we should strive to understand why AMZN stock is so resilient.
The Mysterious Insulation of AMZN Stock
The entire philosophy behind Amazon is unique. The company is designed to reinvest its money instead of keeping it. Any cash that comes in is probably heading right out, but none of it can be wasted. That’s when investors lose patience.
Personally, I would get furious if a company was burning my hard-earned dollars on nothing. But when the money is being used on new businesses that keep sales growing at a rapid clip, then my investment is only getting larger.
I may never see dividends or buybacks, but the capital gains would more than make up for it. That’s the golden ticket Jeff Bezos gives to everyone who invests in AMZN stock.