This Is Good News for Amazon Stock
Here’s some good news for Amazon.com, Inc. (NASDAQ:AMZN) stock investors: the company just received high praise from billionaire investor Warren Buffett.
Buffett isn’t really known to be a big fan of tech stocks. His favorites are often found in less exciting names like The Coca-Cola Co (NYSE:KO), American Express Company (NYSE:AXP), and Procter & Gamble Co (NYSE:PG).
This time, though, the Oracle of Omaha did not hold back his fondness for the e-commerce giant. His praise was particularly high for Amazon’s founder and CEO, Jeff Bezos. (Source: “Warren Buffett Says He’s in Awe of Jeff Bezos’ Genius,” CNBC, May 2, 2016.)
“We haven’t seen many businessmen like him,” said Buffett. “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: Ibid).
Buffett coined the term “economic moat” to refer to a company’s competitive advantage that can protect its profits from others. Although he did not use that specific term when talking about Amazon, the company’s economic moat couldn’t have been wider.
Buffett said that if you were to challenge Amazon founder Jeff Bezos in his business, “That would be like playing chess with Bobby Fischer 40 years ago; it would be all over on the first move.” (Source: Ibid.) In other words, Amazon’s economic moat is so wide that no one can challenge its position in the e-commerce business.
The key to success in e-commerce and also in retail is to make customers happy. Buffett is no stranger to this. His company Berkshire Hathaway Inc. (NYSE:BRK.A) owns significant stakes in Wal-Mart Stores, Inc. (NYSE:WMT) and Costco Wholesale Corporation (NASDAQ:COST).
Pricing is probably the best selling point of Amazon. The company sells numerous products, many of which are offered at a discount. This gives people an incentive to shop on its e-commerce platform instead of going to brick-and-mortar stores.
The downside to buying online is that customers have to wait for delivery. However, over the years, Amazon has built an incredible logistics infrastructure that can almost rival traditional shipping companies.
Amazon’s efforts have translated into incredibly fast deliveries. If you are an “Amazon Prime” member, you get free unlimited two-day shipping on millions of items. The company even started offering same-day delivery service to certain areas.
As if lower pricing and fast shipping are still not good enough, Amazon also rolled out an on-demand video streaming service as part of its Prime membership. Like the company’s other segments, “Amazon Video” has improved tremendously. Its original content took home two Golden Globe awards earlier this year.
Now, as Amazon Video expands its content library, the company decided to also offer it as a monthly standalone service. Amazon Video—first started as a perk for Prime members—might be able to give industry leader Netflix, Inc. (NASDAQ:NFLX) a serious run for its money.
The Bottom Line on AMZN Stock
Of course, Buffett is a value investor, and AMZN stock is certainly not cheap. Trading at $684.78 per share, Amazon stock has a price-to-earnings (P/E) multiple of over 550X. Even its forward P/E is more than 70X.
While Buffett is probably not going to take out his checkbook this time, it’s nice to know that one of the greatest investors in the world likes what Amazon is doing.