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Monday, November 3, 2014

Amazon: Time To Sell!


Amazon impacts the book industry more than any other entity, and though Amazon is in the business of many industries, it is in publishing that it leaves its biggest mark.  This is why there’s a lot of debate about Amazon in the media.  But what really should be scrutinized is how a company the size of Amazon routinely loses money and now at a bigger pace than ever – and still retains such a high inflated stock price.

Wall Street has always loved the world’s biggest online store.  The stock price has always been way beyond the normal price-to-earnings ratio of 20:1.  In fact, even after third-quarter earnings revealed over a half-billion dollar loss, the stock dropped, but not to a level that its numbers demand.  The stock is off by 30% from its $400 high a year ago.  But at $279 a share it is so overvalued that it bends logic.

I know consumers don’t care.  They get cheap goods with free shipping and reliable customer service.  But here’s who cares:

·         The book publishing world: publishers, authors, stores
·         Its competitors in all the other industries that it unfairly competes with by underpricing them (not to squeeze out a profit, but a loss)
·         The government, which still doesn’t collect as much tax revenue from Amazon as it does other online companies or physical stores.

Wall Street should care, too.  The stock is due to tank in an enormous way.  You can’t keep losing significant amounts of money forever, which is what Amazon consistently does.  Amazon’s strategy to own the world comes at a time when the world should wise up.

Amazon is a race – bring the book world to its knees before it falls apart on Wall Street.

Amazon does a lot of things well, almost too well.  Their secret is that they can afford to lose money to help them compete and undermine others, but only if the stock price continues to grow and thus, pay for its losing efforts.  As soon as the stock corrects itself, you’ll see a different Amazon.  And when that happens, it won’t be able to compete the way it’s been doing.  But will bookstores, electronic stores, Netflix and others be around by the time Amazon shows real weakness?

If I had Amazon stock, I’d sell.  They will never make the size of profit needed to justify the inflated stock price.  They don’t make any profits and admit they won’t anytime soon.  They see gaining market share as the most important thing.  I would rather invest in Apple or Google.  They both seem poised for growth, based on a model of innovation and not undercutting a break-even price.

Brian Feinblum’s views, opinions, and ideas expressed in this blog are his alone and not that of his employer, Media Connect, the nation’s largest book promoter. You can follow him on Twitter @theprexpert and email him at brianfeinblum@gmail.com. He feels more important when discussed in the third-person. This is copyrighted by BookMarketingBuzzBlog © 2014

1 comment:

  1. You make a number of valid points but all of them fail in the face of the utter stupidity of Wall Street. Amazon.com should have exploded in the bubble in 2001 but investors believe that anyone who can garner the size of customer base and apply to it the marketing acumen that Amazon.com has exhibited -- and which is headed by one of the savviest promoters ever to launch a company -- is an inevitable success. Although I think their stock richly deserves to be pounded into reasonable range, I see not a single indication -- not a single analyst of repute, not a single investment fund -- suggesting that it's likely. And in a market shamelessly manipulated by knee-jerk analysts with no more idea what it takes to run a business than they understand about space travel, that's not a recipe for price correction.

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