Are Investors Right to Lose Patience With Amazon?

Joe Goldman |

Jeff Bezos’ vision for Amazon (AMZN) is clear: grow everything. Amazon remains on a quest to increase revenue, expand infrastructure, develop technology, and broaden its offerings of products and services so that one day Amazon can dominate retail and technology – and maybe even the entire world.

Amazon’s growth has surpassed even the wildest dreams of consumers and investors over the past 5-10 years. The company has also rolled out streaming video, tablets, cloud storage, a grocery delivery service, and a plethora of other offerings since the depths of the recession. It also reported quarterly revenue of $19.34 billion, a 23% increase year-over-year, during its earnings release on Thursday.

 

 

Yet, investors are still losing patience with Amazon’s financial results. The company’s losses widened to $0.27 per share for the quarter, while investors expected a loss of $0.15. Amazon is no stranger to losses, as the company hasn’t posted a meaningful profit since its inception. Revenue has always been the real story over profits. Yet, investors were still dissatisfied with the combination of a widening loss and no timetable for any meaningful returns. Based on the 10% selloff in Amazon stock on Thursday, it’s obvious that investor patience is running thin.

Many investors assumed five years ago that Amazon would be profitable by now. Yet, Amazon was given a pass over the past few years due to the sheer size of its revenue growth, the success of Amazon Prime, and the excitement surrounding future products like Amazon Fresh, Amazon Dash, a new a smartphone, and the potential use of drones for delivery.

 

 

Amazon’s plan is obvious, yet completely unknown at the same time. A stock’s inherent value is the value of its free cash flows discounted back to today. However, Amazon will have no free cash flows to speak of for the foreseeable future. Investors have no idea whether the stock will be profitable next year, in five years, or in 50 years. Investors usually seek a timeframe pertaining to when their investment could pay off, and Amazon simply cannot offer one. It’s truly anyone’s guess.

The only question surrounding Amazon – a huge one indeed – is whether Bezos is investing Amazon’s would-be profits in the right places. It’s hardly a stretch to say that Amazon could one day dethrone Wal-Mart (WMT) as the largest retailer in the world, and its other offerings could power Amazon to unforeseen heights.

For now though, investors need to have patience – possibly years worth of patience. Describing Amazon’s scheme as “grand” is a gross understatement. It has greater aspirations than any other company on earth, possibly throughout the history of the stock market. Those with faith in Amazon’s team will simply need to wait it out. In the meantime, Amazon’s losses will continue to pile up as Bezos builds his retail and technology kingdom. 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
WMT Wal-Mart Stores Inc. 70.08 -0.26 -0.37 10,756,653
AMZN Amazon.com Inc. 768.66 1.33 0.17 2,470,923
TEI:PUR Toscana Energy Income Corporation 1.50 0.00 0.00 0

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