What to Expect from Amazon Stock
Amazon.com, Inc. (NASDAQ:AMZN) had its most successful year ever in 2016, yet some analysts continue to underestimate AMZN Stock. They just don’t get it.
Amazon isn’t an ordinary company, so trying to value it like one is foolish. You can’t even compare Amazon to other tech giants because its CEO, Jeff Bezos, isn’t like Bill Gates or Mark Zuckerberg.
Sure, he founded Amazon in his garage and became a self-made billionaire off its success, but that’s where the similarities end. Bezos is actually more like Warren Buffett.
Before you get worked up about this comparison, take a moment to consider what the two men have in common. When you get down to the raw essentials of their job, both Jeff Bezos and Warren Buffett are supposed to allocate capital. That’s their main role—to plant money in the places it is most likely to grow.
Berkshire Hathaway Inc. (NYSE:BRK.A) may have started out as an investment firm, but it’s a de facto conglomerate right now. Buffett owns dozens of companies. He buys them because he thinks they are undervalued, and he’s usually right. That’s what made him one of the richest men on Earth.
Jeff Bezos has a similar job, because Amazon never sticks to one business line. It is always conquering new industries, and Bezos’s job is to decide which industries are ripe for the taking. Much like Buffett, he has to spot and exploit undiscovered potential. It’s the same skill set.
But more to the point, both Buffett and Bezos are the best at what they do. The Oracle of Omaha even gave Bezos his due in an interview last year, saying that trying to take down Bezos would be like “playing chess with Bobby Fischer 40 years ago.”
“We haven’t seen many businessmen like him. Overwhelmingly, he’s taken things you and I’ve been buying and he’s figured out a way to make us happier buying those products, either by fast delivery or prices or whatever it may be, and that’s remarkable.” (Source: “Warren Buffett says he’s in awe of Jeff Bezos’ genius,” CNBC, May 2, 2016.)
That is high praise coming from the greatest investor of the last 50 years. But what does it mean for AMZN stock? How is it useful to know that Bezos is like Buffett?
I’ll put it this way: Lots of people are betting against Amazon stock because they believe the price-to-earnings is too high. Others believe it is a great company, but that it will have to slow down eventually. They’re all making the mistake of treating Amazon like a regular company.
None of them think of Jeff Bezos as a capital allocator. That’s all he’s doing, folks. Exploiting unused market opportunities to facilitate continuous growth in Amazon’s size. That’s exactly the same thing Warren Buffett did for the last 50 years.
Everything changes once you understand this basic principle. The long-term valuation of Amazon stock is forever altered by the fact that AMZN stock never has to slow down. It never has to mature. Bezos can simply keep driving capital towards new market inefficiencies for as long as he’s alive.
Berkshire Hathaway stock was trading at $290.00 when it first became a publicly traded issue. In the 37 years since then it has grown to $240,280 per share. That’s 92,315.38% in capital gains!
Amazon stock is capable of similar growth because Jeff Bezos is cut from the same cloth as Warren Buffett. They are one and the same.