The Upside for AMZN Stock
Most people do not understand Amazon.com, Inc. (NASDAQ:AMZN), which perfectly explains why bears get down on AMZN stock. They consistently underestimate the company’s potential by using the wrong tools to measure it.
To the layman, Amazon is a digital superstore, the place where you can buy almost anything and have it delivered rather quickly. However, investors think of Amazon as a pillar of revenue growth, which will hopefully lead to massive profits somewhere down the line. Meanwhile, Amazon CEO Jeff Bezos sees it as something in between.
The Bezos vision for Amazon is unlike anything else in the financial world, which is precisely what makes the company so difficult to value. He believes that in the long run, Amazon will be valued by its importance to customers rather than its bottom line.
Judging by his past statements, Bezos may never let Amazon pay out profits. The idea is for Amazon to continue plowing its profits back into new business lines as a way of preemptively meeting customer needs. That kind of service breeds loyalty. (Source: “Amazon’s been profitable lately, but don’t expect it to last,” Vox.com, December 9, 2015.)
Amazon Stock Could Keep Rising
Bezos is fond of quoting Benjamin Graham, the legendary investor who taught Warren Buffett how to make money, at company meetings, saying, for example, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” (Source: “Amazon.com Letter to Shareholders,” U.S. Securities & Exchange Commission, April 2013.)
There’s a ton of wisdom packed into that line. In fact, it’s probably one of the most useful things to remember while investing, especially if you’re looking at the intrinsic value of a business. It means that a company is judged on its products over the long term, whereas short-term market fluctuations are based on a popularity contest.
Investors have been bullish on AMZN stock since the firm delivered positive earnings in the last two quarters. “Amazon Web Services,” the company’s Internet infrastructure arm, is becoming a huge profit center, but that cash probably won’t get passed on to Amazon stockholders.
The company is in the middle of launching several new projects that will require more investment. They want to build a fleet of delivery drones, develop “Amazon Fresh” into a national grocery delivery brand, and expand “Amazon Prime” into a premiere streaming service. (Source: “Amazon’s been profitable lately, but don’t expect it to last,” Vox.com, December 9, 2015.)
Any profits that Amazon makes will probably help fund those ventures.
Bezos Plans Ahead for AMZN Stock
That kind of thinking is completely foreign to the quarterly capitalism of today’s Wall Street. Somehow, Jeff Bezos was able to get enough investors to see his rationale, but many more still don’t understand. They are eagerly awaiting the fall of AMZN stock.
Perhaps the best way to understand Amazon is through the words of Jeff Bezos himself: “Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas,” says Bezos. “Take a long-term view, and the interests of customers and shareholders align.” (Source: “Amazon.com Letter to Shareholders,” U.S. Securities & Exchange Commission, April 2013.)