What Makes This Internet Benchmark a Top Contender Moving Forward

Internet Benchmark a Top Contender Moving ForwardOn May 16, 1997, Amazon.com, Inc. (NASDAQ/AMZN) closed at $20.75. Fast-forward 16 years and the company, started by Jeffrey Bezos, is now trading just below $300.00 with a market cap of $131 billion. The stock is expensive, trading at 102-times (X) its estimated 2014 earnings per share (EPS), along with a massive price/earnings-to-growth (PEG) ratio of 9.14—meaning Amazon.com is trading well above its five-year growth rate.

While the significant valuation assigned by the stock market appears extreme at first glance, considering that other high-flyers are trading at lower valuations, like Google Inc. (NASDAQ/GOOG) at only 17X and even Facebook, Inc. (NASDAQ/FB) at 39X, there is also plenty of optimism.

Amazon.com Inc Chart

Chart courtesy of www.StockCharts.com


Amazon.com has an aggressive online selling strategy to expand its business into nearly every facet in which money can be made. Initially a seller of books and music, the company, under the direction of Bezos, now wants a piece of just about every market sector. Just like Wal-Mart Stores, Inc. (NYSE/WMT) or Costco Wholesale Corporation (NASDAQ/COST) on the brick-and-mortar side, where these companies are selling everything, Amazon.com is trying to do it via the virtual arena.

In my view, the strategy adopted by Amazon.com makes a whole lot of sense. The numbers shopping online have evolved and are now a significant part of America’s economy.

For instance, I bank online, buy clothes, books, and music online, stream videos, and just about anything else you can think of. The Internet has become the real deal.

Amazon.com recently announced its online video streaming business that will go head-to-head with incumbent Netflix, Inc. (NASDAQ/NFLX) and Hulu. (Read “Now That the Video Streaming Wars Have Begun, Who Will Win?”) Amazon.com has the subscribers to monetize any business idea. The company will simply aim to sell more products to its massive subscriber base.

So it is not a surprise that Amazon.com may be extending its online grocery business “AmazonFresh” to New York City, expanding from the current Los Angeles and Seattle metro areas. While still in its infancy, the concept of ordering groceries online for same-day delivery has been around for over a decade, but really has not caught on with any major player. Maybe Amazon.com will become the dominant player, since I wouldn’t bet against Bezos.

But even if AmazonFresh fails to pick up steam, the aggressive expansion strategy of Amazon.com into numerous business segments is intriguing, which is why the company has been given such a high multiple. The valuation is clearly excessive but you get a sense that Amazon.com has what it takes to become one of America’s top companies going forward.