Amazon urging shareholders to be patient

After covering Amazon for a few years now I am sure you get the point that these guys are not focused on present earnings. Somehow Jeff Bezos has managed to convince shareholders that the earnings will come and that they must just be patient. Not much has changed as the company who trades at $265 reported earnings of 18c for the quarter. This comfortably beat expectations of 10c but it is revenues which show the real picture here.


These were a little light verse expectations, $16.07bn vs $16.14bn. This showed a net sales increase of 22% compared to the first quarter last year. I'm not even going to get into valuations because there is not point. But let's assume that once they are finished their big capital expenditure spree they manage net profit margins of 10%. With expected revenues of $75bn this year that means profits of 7.5bn. The company has a market cap of $125bn meaning that even at these assumed profit margins they would be trading on 16.7 times earnings.


But investors are expecting sales to grow at an alarming rate. Not only are Amazon sacrificing profits by investing in massive distribution centres, they are also selling hardware at nearly cost so as to sell people their content. This short term margin killer has good long term prospects. From their presentation Business Insider have come up with some exciting highlights where Amazon are gaining exposure.

TV and movies seem like a big theme for the company. This is of course very exciting. Nobody likes to wait a whole week to watch a series and let's be honest, series are very popular. So are movies and being able to stream them on your Kindle is convenient and cheap. Of course books is how the business started and as a client myself I love the convenience of being able to buy a book on my Kindle app. This is expanding to short pieces and any other readable material. Reading will never go out of fashion.


There is also talk about an Amazon set top box. They have so much content to sell, the more exposure they have to their clients and the easier they make it for clients to buy things, the more they will sell. It sounds similar to Apple TV where you plug the set top box into your TV and basically you can stream Amazon content.


The options are endless. eCommerce is the future and Amazon is the biggest player in this space. In this case the bigger the better because you become the most reliable and the all the big retailers have to come to you if they want to be in the eCommerce world. Therefore you have best selection too. It is certainly not for your conservative investor seeking yield but we still like it for clients who have a strong stomach.