An Investment for You – Your Kids – and Your Grandkids
If you’re a forward-looking type person, don’t like high risk – and think for the long term, buying Amazon (AMZN) is a great investment. High capital spending for strong revenue growth, while trading off profits and short-term investors’ happiness, has been Amazon’s motto since it went public in 1997 and it has been successful at this strategy ever since.
Jeff Bezos, Amazon’s founder and CEO started the company as a modest online bookstore based out of Seattle in 1995. The company slowly began selling digital content like videos and software and with time provided a marketplace for other online retailers to sell their products.
Today, Amazon has grown its business in so many directions, that it is hard to think of the company as just an Internet retailer. Amazon has its hands in cloud computing, television, advertising, publishing, digital content, software, and enough projects to fill up the rest of this page.
All of these activities pit the Internet giant in direct competition with Apple, Google, Netflix, Wal-Mart, eBay, and various fortune 500 companies. Rumors about Amazon’s future ambitions are plentiful, and while some seem unattainable, Amazon’s record of success sends shivers down the spines of the competition as the rumors emerge. Is Amazon looking into its running own mailing service with drones? Is a smartphone in the works? Or a quick trip to space? While these are a diverse set of businesses to commit to, Bezos’s brilliance and determination should not be underestimated as Amazon is on its way to hitting $100 billion in market capitalization.
Amazon’s stock has doubled in the past two years and increased by fifty percent over the last twelve months, while currently trading above $380. In the height of the financial crisis in November 2008, Amazon’s stock halved from around $70, and hit a low of $35.03. Within a year the stock completely recovered and almost doubled from pre-crisis levels. This is in contrast with the NASDAQ (^IXIC) that recovered after a year, but only managed to hit pre-crisis levels.
Its stock aside, Amazon’s revenue growth over the last four years has been remarkable, as the chart shows. This year its projected yearly revenue is expected to come in just under $75 billion.
Amazon’s revenue breakdown is fairly complicated as the company does not report on sales of specific items, and products like cloud computing and the kindle. However it can be broken into two categories, Electronics and merchandise accounted for 60 percent and media for 36 percent in last years earning report.
**there is a chart that i had trouble attaching to this document showing Amazons growth**
If you don’t want to trust Amazon’s raw numbers and reassuring growth, perhaps look to its visionary founder Bezos, who was named 2012 business person of the year by Fortune magazine and is considered a genius in his realm by his peers and competitors. Bezos, currently the nineteenth richest person in the world has stuck with three basic ideas that fuel Amazon’s continuing growth. Put the customer first. Invent. And be patient. These principles along with Bezos’s reluctance to listen to Wall Street’s demands for profits has allowed Amazon to grow at the rate it has without having to worry about getting punished by investors dumping its stock. Bezos places his faith in the loyalty of consumers, ahead of the sharks of Wall Street.
To put Amazons remarkable performance in more perspective, a $1,000 investment in Amazon when it when public sixteen years ago would be worth close to $240,000 today. Neither eBay, Yahoo, Google, LinkedIn nor Facebook come anywhere near close to this astronomical growth; $1000 in Google would only be worth around $12,000 today. Likewise a $1,000 investment in eBay and Yahoo would be worth under $70,000.
These numbers are remarkable, considering that Amazon is not even close to its potential market capitalization and its stock is still undervalued. According to Nielson, a leading global information and measurement company, E-commerce will be the fastest growing segment of the retail industry by 2017 and is projected to grow at a pace of eleven percent a year. Amazon already has its big foot in the door and is currently the largest Internet retail company in the world. According to the trade publication Internet Retailer, “Amazon sells more online than its next twelve biggest competitors combined.” This includes companies like Wal-Mart, eBay, Apple, Overstock, and Intel.
When taken out of context, Amazon’s net losses could be worrying, but a long-term investor should know that the company’s net losses arise from its immense growth. Amazon is investing heavily in its long-term business projections, including acquiring new warehouses to lower shipping expenses, Amazon Web Services (AWS) that has grown at a faster pace than all its competitors, and the kindle, which just recently saw its best sales over thanksgiving weekend.
The company has earned the praise of being called a “serial monopolist” by Stanley Druckenmiller a former chief strategist of billionaire George Soros. So as long as Amazon’s monopolistic ambitions do not get entangled with regulators, you should put your faith in Bezos and Amazon, because they have faith in you.