A Reframe on Amazon’s Poor Guidance

Right now, we are hearing about how, Amazon, has announced lower-than-expected sales guidance. Many are projecting this to mean a down period for Amazon as new costs creep up on them and growth in AWS (Amazon Web Services) slow. I would argue that this creates a wonderful opportunity for anyone willing to thing in the long-term.

For the past year, Amazon has been flirting with the title of “most valuable company in the world”, with Apple being the competition. The companies run neck and neck, and with this poorer guidance, they are essentially tied at around $800 billion right now. It should be noted that the last quarter’s earnings were actually above expectations. However, the future projections always seem to carry the most weight.

Amazon’s Confusing Structure

What people tend to forget about Amazon is that it is the most difficult company of all the FAANG stocks to comprehend. What other company has been able to dominate is so many different businesses that seem unrelated, yet are able to find strong synergies? Amazon is a media company, has a loyalty program, dominates the cloud space, encapsulates all e-commerce in the West, and is the juggernaut of voice in our culture. In just a few years, Alexa has become a fixture in our lives and has overtaken Siri as the de facto “AI” in our lives.

So forgive me if I don’t want to go against Amazon. Instead, I would treat any short-term negative news as the buying opportunity of a lifetime. Amazon is geared up to grow their media presence significantly, and has the chance to be a dominating force in that industry as well. And with the iPhone ceding technological leadership to the Amazon Echo (and having numerous complementary uses for Amazon), the next few years are likely to be very bright for the company.

What makes Amazon so difficult to value is the wide range of businesses present within it. For example, it is an e-commerce company at its core. But it also has one of the largest loyalty programs in the world (Prime). AWS was started as a utility for the company and is now a massive cash cow. The complexity is both the greatest part and the biggest risk to the company.

I say greatest risk, because anti-trust lawsuits and and investigations are the most likely threat to the company in the next few years. Its current method of operation seems to be tacitly approved, but the wide range of businesses operating under one name will eventually be perceived to violate the competitive landscape of the States. The question is: can this be preempted by spinning off AWS, or is it a waiting game?

Not to Be Underestimated

Years ago, I remember pundits talking about how Amazon was overpriced and its insane multiple was unjustifiable based on profits and where the company was going. Those people were clearly wrong, but the chance to buy in hasn’t disappeared. Little drops like this should be taken for what they are: short-term thinking being applied to one of the most strategic firms of all time.

There are no real long-term competitive threats to Amazon that bear credible brunt. Assuming CEO Jeff Bezos’ divorce doesn’t result in the destruction of the company, all should be fine. But that is a whole other discussion in itself.

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