Wednesday, March 25, 2009

Taking Stock Of Amazon

Amazon’s stock these days is the retail industry’s Rorschach test. What you see depends on what you want to see.

The e-commerce retailer’s stock closed at $72.81 Tuesday, more than double its showing of just four months ago ($35.02 on November 19, 2008). That’s where the facts end and the interpretations begin.

Some see Amazon as a smart online retailer and master of supply-chain efficiency benefiting from consumer interest in its new wireless reading device, the Kindle 2. In fact, Amazon CEO Jeff Bezos used the Kindle 2 to highlight the company’s effective delivery model in a New York Times article. “E-books should be cheaper than physical books,” he said. “Readers are going to demand that, and they are right because there are so many supply-chain efficiencies relative to printing a paper book.”

Other supply-chain efforts are now paying off, which is why the company is being rewarded, BusinessWeek asserts, for “expanding into new product areas and pouring money into new technology aimed at fulfilling orders more efficiently and crunching data on user buying and browsing habits.”

The Wall Street Journal calls Amazon one of “The Recession’s Early Winners,” observing, “Expect more bricks and mortar stores to close as overstretched consumers retrench. But when it comes to online retailers, the story changes.” This view of Amazon sees the company and certain other e-commerce merchants, such as Netflix, as a new breed of retailers who will survive the recession by providing desirable products at lower prices with user-friendly home delivery.

However, there’s also a less generous outlook regarding Amazon’s stock. The company’s fluctuating stock prices over the years and less than robust earnings raise doubts among stock watchers. Some who commented on BusinessWeek’s article, for example, called the stock price “absurd,” and “highly suspect,” and consider Amazon’s “the most manipulated stock in the market.” One wrote, “You would think that we were back in the bubble days of the dotcoms with the valuation afforded this stock.”

Amazon’s critics feel the media is contributing to the inflation of the company’s stock and playing right into the PR-conscious company’s hands. After all, Bezos and the Kindle 2 appeared on a range of national network TV shows in February and March, from the Today show to The Daily Show with Jon Stewart.

Is all the Amazon press simply media hype for a company that doesn’t produce the earnings to match its stock price, or is it legitimate coverage of a retailer providing the innovative new technology that consumers desire? The reality may be a little bit of both, which offers an endless cycle of fodder for Amazon’s fans and critics alike.

So, is Amazon a legitimately hot retail tech industry stock, or are investors likely to get burned? It all depends on what you want to see.

18 comments:

  1. Ahhh...Little bit of both..Pick a side Roach! Stock price is simply the present value of future cash flows. Other retailers are posting negative comps on top of prior years' negative comps. Their future is foggy and thus estimation of future cash flows becomes difficult. Amazon has been delivering solid sales growth even in this climate and hence investors reward it.

    Think about what we all want from any Retaler (online or Brick n Mortar):
    1. Good Selection of Brands & SKUs
    2. Fair Price (we want low price these days)
    3. Availability of those items
    4. Convenience of shopping (we dont want to drive too far)
    5. Good Customer Service (associates, return policy etc)

    Now think about Amazon vs other traditional retailers one bullet-point at a time:

    I am finding 50 times the selection, almost never out-of-stock, excellent price leadership, allowing competitors to sell on their site at a lower price if they wanted to, open 24x7x365, excellent customer service and very cost effective shipping options.

    In the near future, I see people subscribing to amazon for consumable goods to be delivered to our doorsteps at the rate we consume. They have a big advantage where they can deliver a consistent experience for every single customer. That is impossible for the traditional retailer.

    ReplyDelete
  2. That's why consumers love Amazon. But isn't there something a little odd (and dotcom bubblish) about a company that sees its stock price rise and fall so dramatically in a 52-week cycle? Their range is from $34.68 to $91.75.

    ReplyDelete
  3. I own a bookstore. Actually, 3 Christian bookstores. I, too, fear physical bookstores will disappear in the near future as I have seen hundreds in our industry close in the last few years. Some of these were 50 year establishments! Things are definitely changing. Ebooks are only a small part of the reason bookstores are facing trouble.

    I appreciate the question, "What can B&N do to survive?" Since we have been affected by online competition we apply that question to our own business. As a consumer I can see the “draw” to shop at Amazon.com. It has low prices, good reviews, open 24x7x365, and an efficient interface – all from the convenience of your own home.

    The perception is that Amazon has the best selection (note the commenter who mentioned that local stores don't have selection and have to tell customers they can order the book for her). It's just not feasible to stock every book that someone may inquire about. Bookstores can’t afford to tie up money in books that rarely sell but we still have to have a good selection. Amazon can rely on other “stores” to fulfill when it doesn’t have the stock. You can’t see amazons inventory but it has to order too. Physical stores are often able to get your book within 2 days.

    The perception is that Amazon has the lowest prices. We often beat Amazon prices – mostly because we have to.
    Why do they get to set the price bar? Economies of scale are totally in Amazon’s favor. It can charge less for a book and make its profit on volume. It achieves better purchasing discounts than most physical bookstores based on volume. Amazon doesn’t have to provide an impressive shopping atmosphere, individualized customer service, personalized attention and upscale fixtures.

    So, local bookstores are fighting an uphill battle. But, the question is; Do you desire a fully computerized shopping experience? If you don’t care about having locally owned retail businesses of all types – just continue to take your business online.

    ReplyDelete
  4. A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.


    Stock Value

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  5. This is a wonderful opinion. The things mentioned are great and
    needs to be appreciated by everyone.
    Stocks Buy

    ReplyDelete
  6. Thanks for blogs.Amazon’s stock these days is the retail industry’s Rorschach test.o, is Amazon a legitimately hot retail tech industry stock, or are investors likely to get burned? It all depends on what you want to see.
    ===============================================
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  7. L&T has announced orders worth Rs 19,500 cr in 2nd-qtr-to-date. Considering this trend, Barclays expects order inflows of Rs 27,000 cr in 2nd qtr, up 29% Y-o-Y. During 1st qtr of FY14, the private capital goods major's order book increased 28% Y-o-Y, including major orders from building & factories, heavy civil infrastructure, hydrocarbon and transportation infrastructure businesses.

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  8. European stocks were steady to higher, after the release of
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  9. Asian stocks traded broadly lower as a recent rally in the region’s equities appears to be pausing on heightened fears that tapering of the Federal Reserve’s quantitative easing.
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  10. U.S. stock were mixed, investors remained cautious ahead of the release of U.S. data, amid growing uncertainty over whether the Federal Reserve will begin tapering its measures.

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  11. INDIAN EQUITY BENCHMARK ended flat amid a volatile trading session, as investors exercised caution ahead of the two-day FOMC meet and Reserve Bank of India's monetary policy later this week. IT index tracked depreciation in rupee and was the top gainer among the sectoral indices up followed by Metal, Auto and FMCG indices. However, Realty, Power, Bank and Consumer Durables shares ended down.

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  12. Yes Bank has moved higher, extending its 7% rally in past two days, after the private sector lender said it has successfully raised $257 million through a two-tranche, dual currency (US dollar and euro) multi-tenor syndicated loan facility. The bank has raised $75 million and €34 million for one year and the balance $105 million and €24 million for two years.


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  13. Ranbaxy stock saw an upward trend after slipping in early trade, the stock gained momentum after reports of Indian drug controller statement that Ranbaxy’s drugs sold in India are safe. It closed 3.55 percent up at Rs 346.10. Ranbaxy stock has been underperforming since Monday when the US FDA issued an import ban for the drug major’s plant in Mohali.

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  14. Most Asian bourses traded lower as equities took a breather a day after soaring on news the Federal Reserve will not alter its bond-buying program known as quantitative easing.

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  15. Shares in Dena Bank and Vijaya Bank fall over 5 percent after the Announcement of the stock's exclusion from the NSE derivatives segment. Trading in futures and options contracts of Dena Bank and Vijaya Bank would not be available from Nov. 29.

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  16. European were lower, as markets were jittery amid sustained uncertainty over whether the Federal Reserve will soon begin tapering its stimulus program and as U.S. budget concerns.

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  17. INDIAN EQUITY BENCHMARK ended on a negative note led by declines in bank shares as RBI chief Raghuram Rajan's comments on inflation being still high, were seen weighing on market sentiment. Markets also tarcked financials as investors adopted a cautious stance ahead of the June-quarter current account deficit.

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  18. This is one of the few blogs that i read constantly,very nice source of knowledge.

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