Stock Analysis: Amazon Is Still Unstoppable

With new announcements to improve the consumer experience coming out almost weekly, Amazon is solving problems and growing bigger and

Amazon has long had a love-hate relationship with investors. With a forward price to earnings ratio of 113.88, traders have doubled down on their long positions simply out of the company’s sheer potential. Shares of the company’s stock are up 93% on the year.

But many analysts and investors alike have maligned the company, calling it the only publicly traded charity. Why? Because despite the 20+ percent revenue growth the company has achieved every year since it was conceived, there have been few quarters where the company has actually turned a profit.

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Those days are over

Over the last year, Amazon has had a positive bottom line twice. While for most companies that wouldn’t be seen as a good sign, it shows that a) Jeff Bezos doesn’t really care what Wall Street thinks, and b) he can turn on the profit spigot whenever he wants.

In the latest earnings report announced last week, the company crushed analyst expectations:

  • Revenue was up 23% year over year to $25.36 billion, beating the consensus estimate by $450 million, or 1.8%.
  • Earnings per share came in at $0.17, shattering expectations of -$0.13 per share.
  • Amazon Web Services has become the company’s secret weapon, with revenue of $2.09 billion, a growth of 78% year over year. Operating profit from the segment grew five-fold to $521 million.
  • North American revenue (excluding AWS) continues to grow, rising 28% from this time last year to $15 billion. Second quarter revenue growth was 26% year over year.

As you can see, this juggernaut is still acting like a growth company despite being in business for 21 years. It’s no wonder it’s still able to defy Wall Street’s expectations of large corporations — it doesn’t act like one.

Hardware continues to impress

Barring the flop that is the Amazon Fire Phone, Amazon’s hardware aspirations have been impressive. Known for selling its hardware at or below cost, Amazon’s focus has been on getting its customers to use its devices to purchase its media.

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That reality came to a head when it recently announced it would no longer sell Google’s Chromecast and Apple TV on its site. While some pundits complained about the move, one calling it “unbelievably stupid,” it’s gotten to the point that we should know better than to question Bezos’ judgment. Amazon has done so well because it’s good at what it does.

For those trying to understand the logic of the decision, consider why the company’s devices are so cheap. At this point, it’s likely much more lucrative for Amazon to get customers to buy the Amazon Fire TV Stick and pay for apps and media through it than to sell its competitors’ devices that don’t offer Prime Video or any other Amazon-developed apps or media.

Amazon’s plans to take over the world seem to be coming along rather nicely

Amazon also took another swipe at its competitors when it released its newest Fire tablet. Although it’s bulkier than any of Apple’s iPad tablets and made out of plastic instead of metal, the fact that it’s a cool $50 proves to the public that Apple’s iPads, while superior in every way, are grossly overpriced. With Amazon’s mission being lower wholesale costs and full discretion over retail prices, the Fire tablet was sold out almost immediately. The company also created a deal where customers can basically get Fires for the whole family with a deal to buy five and get one free. With that costing just $250, that’s still $150 less than what you would have to spend to get just one iPad mini 4.

Conclusion

When I think of Amazon, I invariably think of the 1990s cartoon “Pinky and the Brain.” At the beginning of every episode, Pinky asks Brain what he wants to do now that the scientists of the lab they live in are gone for the day. “Same thing we do every night, Pinky,” comes the reply. “Try to take over the world.”

While Pinky and the Brain’s plans always fail, either due to Pinky’s idiocy or the impossibility or arrogance of Brain’s plans, Amazon’s plans to take over the world seem to be coming along rather nicely. With new announcements to improve the consumer experience coming out almost weekly, Amazon is solving problems and growing bigger and better than ever.

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