Amazon is a tough stock for a value investor like me to own – it has always been overvalued. Yet it has been a great stock for years – up over 10 times over 10 years. It currently is a $270 stock, with a negative 12 months earnings. Compare that to Google – $800 stock with $32 in annual earnings, or even a Costco – a $100 stock with $4 in trailing 12 month earnings.
I decided to run some comparisons of Amazon with Costco – somewhat similar retail presence, leaders in their field, and likely to thrive in the new internet-centric economy. First, take a look at this earnings yield comparison:
It doesnt alarm me that their earnings yield has gone negative – Amazon has always been running on tight margins, investing in growth. They are pumping lots of money into new distribution centers in many states to allow for quicker and cheaper shipping to more destinations. However the 18 month trend of shrinking yield – caused largely by the stock price runup, has me a little worried – and when compared to a solid company like Costco, they have a lot of ground to make up.
The other chart that bothers me a little more is the revenue growth chart:
Revenue growth has been shrinking – perhaps the new distribution centers will help, but you have to wonder if the glory days of Amazon’s growth is behind it. The market certainly doesn’t think so – during this time Amazon has quadrupled:
As much as I like Amazon the company and its future prospects, at this point I think I can find better long term value in the stock market. Its tough to bet against this stock – its always proven doubters wrong, but maybe this time its time to get out.
I have had a couple interesting Amazon experiences in the last week.
A web site I go everyday has an Amazon ad and in that ad they were scrolling books.
What was interesting is that they were ALL books in MY Amazon recommended list based on recent purchases I had made. I was amazed (and a bit scared) that this web sites ad was able to access my Amazon preferences.
I recently made an Amazon purchase of over $50. I had about $3 left on a gift certificate which was applied to the purchase. One of the items arrived (from a third part vendor) and it was not the correct item so I had to return the $5 item. How did Amazon refund me? They added money back onto my gift certificate instead of crediting my credit card! Now I had more money on my gift certificate than I had before the purchase of over $50! Even though I know I would have used this money in the future I chose not to let it pass since I viewed this as an attempt by Amazon to exploit the situation. It took two emails before they corrected the situation. Even then the email confirming my refund stated that it was from a purchase I had made months before. Investigating this further I realized that they made the refund on the last purchase I had made that did NOT use any money from a gift certificate. How many people use Amazon gift certificates? How many of them have to get a refund? My hunch is that it is Amazons policy that all these refunds are completed by putting money back on gift certificates even if the purchase was for more than the amount left on the gift certificate. This way Amazon gets to make sure that more purchases are made and they get a favorable cash flow.
Is this a sign of desperation or just a savvy business practice?
Do either of these situations point out the good or bad practices that Amazon is using to make money?