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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.