Amazon has no profits, but lots of faith

But what makes Amazon not just amazing but downright dangerous is that as a financial matter it has something even better than profits—the boundless faith of the investment community.

It’s truly amazing how the investment community treats Amazon differently than many other companies.

  • Bob

    Occasionally you see companies get crazy with respect to their valuations like this. And amazingly enough they are able to hold on to it for a while giving the illusion of stability. But eventually their worth is put in perspective and the stock price drops to a level that is more reasonable. Just look at Netflix and Chipotle. I would expect a similar drop in Amazon at some point. People only have faith for so long. I actually like Amazon a lot as a company, it’s just that their stock price has gotten way ahead of itself.

    • studuncan

      The whole point is Amazon is different.

      AMZN has had 15 years of essentially no profits.

    • tylernol

      I would agree, except Amazon has had this suspension of reality going since the .com days. I think it boils down to the belief that Amazon will eventually have a monopoly position in the markets it conquers , and will be able to raise margins once it does so.

  • Bob

    The dot com days were all about attracting eyeballs. Investors didn’t care about profits. It was equivalent to a land grab. Profits came later. But at some point investors got tired of no profits and abandoned the suspension of reality. It is entirely possible that Amazon will return to profits before people stop believing in Amazon and we won’t see a flushing of the stock. Personally, I think Amazon will take too long and we will see a severe dip in the share price. That is really all I’m saying. Amazon will continue to operate as the great company it is but we will see much lower share prices before we see much higher. Their revenue growth is certainly helping keep the share price aloft. One iffy quarter and that could bring the share price down. And this isn’t the same Amazon we have seen over the past 10 years or so in terms of share price. Notice on the chart the dramatic uptick in the P/E around 2010. Having a lofty P/E of 50 with high growth is one thing but 270? That is something else. It doesn’t last.