Originally Posted by schlack
Amazon is leading the online retail market. I'm surprised there's so much hate here for the company and/or stock. They took a loss because they offered cut throat pricing and invested heavily in their future. Not because they have bad products or a bad business model or bad management.
I see the 10% drop as a buying opportunity.
But, the size of the online retail market is not as big as their bloated stock price justifies. By its very nature, retail operates on razor thin margins and in order to justify a high market cap, those companies have to report exceptionally high revenues and/or margins. Keep in mind that Walmart's revenues dwarf Amazon's by more than six times over, and Amazon's total revenues only outpoint Best Buy by about 30%.
Amazon's valuation is based on an expectation that there will be a payoff sometime down the road. That their current and historically non-existent profits will transform into consistent and growing profits in the future. That Bezos' investments will transform the company into a profit-making machine in the future. That their double digit revenue growth will continue for years to come.
That belief has subsidized all of their infrastructure investment and dabbling with media and cloud services. That belief allows Amazon to take losses on their operations in order to grab market share, and in essence, devalue other businesses that have to actually make money in order to survive.
If that belief breaks down, if Amazon's revenue growth shows signs of plateauing, then Amazon's stock becomes a house of cards, and it will be judged by the same metrics as other retailers and/or service providers. Increasingly, investors now wonder just when Amazon will flip the proverbial switch and start making the kind of money that actually justifies their stock price.
Edited by Woochifer - 7/25/14 at 4:01pm