by John Irish
For some time now there has been speculation as to the long-term stability in Amazon.com, Inc. (NASDAQ:AMZN) as an investment. The once “golden girl” of the stock markets continues to be worth a punt for many large scale and retail investors alike. April saw fantastic reviews for the stock from some of the bigger houses. Bank of America has reiterated a buy rating with analysts seeing great potential in the stock. But for many, all is not well with the stock and some signs of concern are evident from not only the business but also the market in general. In particular investors seem to forget that in the last quarter alone the business lost $57 million, or 12 cents a share. For many investors this is seen as a positive where the business is not lashing out dividends but is focusing on reducing operational costs and in essence the bottom line.
Despite this we still witnessed a pretty significant Gap-up in the stock on April 23rd last with the stock moving from $389.99 to $445.10 within one calendar day. A pretty impressive gain for many loyal AMZN backers. This was happening while the cloud or web services business (AWS) is continuing to grow with last profits listed at $265 Million. JP Morgan has also increased their price target for the stock. So with so many good signs what are the concerns with AMZN in the short to medium term?
Joseph L. Shaefer of Stanford Wealth Management is asking the question; is Amazon the Canary in the Markets Coalmine? Shaefer pointed out that in 1999 that he “recommended shorting or selling Amazon” and went on to say; “It was a fortuitous call”. The price plummeted then and he now asks the question will it happen again”? Many commentators are grumbling about the integrity of Amazons business model and its relative lack of immunity to competition. “Porter’s five forces” are an important consideration as to where the business can go from here and what is the real potential risk from competitors.
At Barron’s Steve Sosnick points out an important consideration behind the motivations of many in buying stocks such as Amazon and Tesla. They are almost “faith based” securities. For many investors there is almost an emotional connection in the investment behind the stock. However, we should be mindful that the last time the market showed such an emotional connection with the bigger names was in advance of 1999 to 2000. All the doom and gloom aside Amazon continues to be one of the more impressive performers. As one analyst put it recently, “do you know anyone who has not used services provided by Amazon, even indirectly”?
Look at the bigger Internet service providers (Netflix) who use AWS for the provision of their streaming services. So even people who do not buy books or “Kindles” are indirectly feeding the machine. Perhaps the canaries are singing a little too soon?