- Evidence is mounting that Amazon won Christmas on every level.
- Yet Amazon stock is down 10% from its recent highs.
- Get in before Amazon announces earnings on February 4.
Amazon (NASDAQ:AMZN) went into correction territory on January 5. Having dropped nearly $60/share, from almost $700 to $633, it was due to drop another $12 in after-hours trading and open at around $620, a correction of over 10%.
Betting against Amazon today means betting against the two major trends of this decade, cloud computing and the automation of market. It created the market in the cloud computing and though Microsoft (NASDAQ:MSFT) and Alphabet Inc-C (NASDAQ:GOOG), both beat it on implementations of the technology, AWS is making great progress. Further, Amazon is the primary cause of the second trend, automation of the market.
These trends come at a heavy societal cost, which has not yet been addressed. Deflation is one, unemployment is another. Whole industries are being thrown onto the fire – shopping malls, movie theaters, TV networks, PC and server computing – just as all the old functions of consumer electronics are being compressed into phones and tablets, like Amazon’s Fire. Adapting to these changes is a huge challenge, but are you really going to bet against the company driving these changes?
There are always those will call Amazon a “Ponzi scheme” because it prefers to invest every dollar it brings in rather than hand it back to shareholders. They will claim that Amazon leads to wage slavery, buying goods from Chinese factories, distributing them through low-pay warehouses. They will call Amazon Web Services’ market lead overblown, noting the success of Microsoft (NASDAQ:MSFT) in selling software online, or IBM (NYSE:IBM) claiming service revenue as cloud revenue, while Amazon dominates only in “bare iron” cloud infrastructure.
Yet Amazon has been awash in good news while its shares have been falling in price. The company is making serious headway in India. Third-party sales grew 40% on Cyber Monday. The company says it absolutely killed it at Christmas with 3 million people joining Amazon Prime, TV shows like The Man in the High Castle drawing huge audiences, and millions of new Amazon Fire tablets sold, meaning media sales will continue to grow.
Cynics will argue that the origin of all these stories is the Amazon press room. Market realists will note that the whole market has been slumping, and that hedge funds or oil speculators facing losses elsewhere have to dump their winners. There will be the argument that this is part of the risk-off trade.
The whisper number on Amazon earnings has been rising steadily. Right now expectations are for sales of $36 billion and a profit of $1.62/share. This compares with revenues of $29.3 billion and earnings of 45 cents a year ago. By any measure, Amazon is killing it.
My view is that Amazon should no longer be compared with retailers like Walmart (NYSE:WMT), because it sells so many goods on behalf of other retailers, making it more of an infrastructure company like United Parcel Service Inc. (NYSE:UPS) or FedEx (NYSE:FDX), which it soon might challenge. It is now bringing 20% of its fast-growing cloud revenue to the bottom line, so complaints on that score are also no longer in order.
Amazon is among the tiny number of technology companies playing what I call the “great game” of technological change. Here, Amazon's $297 billion market cap is dwarfed by that of Alphabet Inc-C (NASDAQ:GOOG) ($510 billion), Microsoft ($434 billion) and Apple (NASDAQ:AAPL) ($564 billion).
Which of these companies has better prospects for getting to $1 trillion by the end of this decade? I am guessing Amazon.
I foolishly lightened up on my Amazon holdings at about $540. When the smoke clears on the current panic, I’m buying. For those of you who have been questioning the Amazon story, this is your last chance to get on the ride. Amazon reports earnings on February 4, and February 5 will be too late. By that date Amazon may have announced a stock split, a big buyback, maybe (dare we say it) a dividend?