Friday, June 02, 2017

Amazon Will Provide Everything Except Wash your Windows: Wait, They Do That Too! Really!

You need your windows washed? Go to Amazon. Is your toilet plugged up? Go to Amazon. Need your house painted? Go to Amazon. What? You haven’t heard of Amazon Home & Business Services? Yes, they do all that and more, including cleaning your house, setting up your home theater, or assembling your furniture.

So if you have been wondering why Amazon (AMZN) stock has been rising so much, grossly outperforming the S&P 500 over the last year by more than double, now you know why. They are taking over the lawn mowing business.

But seriously, many investors believe that Amazon is all about Amazon Web Services, commonly referred to as AWS, which is the company’s cloud computing division. And it’s true. AWS revenues have jumped 55% year over year, but still only provides 9% of overall revenues. However, AWS does provide 74% of operating income currently.

Amazon is much more. It is creeping (in a good way) into everyone’s lives. It’s not just the books, and the vitamins, and the clothes, and the watches. Amazon markets just about any product you can think of. (A few years ago, there was a way you could even order marijuana through Amazon, but that’s for another article.) Plus, the intangible growth is enormous, whether it’s music, eBooks, or movies.

Amazon has its CreateSpace division, which allows anyone to quickly publish their own book for free. But now the company is pushing self-produced movies and TV shows. These aren’t the company produced Amazon Originals like Bosch, these are the individual produced shows that anyone can create and have Amazon market for them, with a choice of how to receive revenues. An example of this is the show Private Sales, a TV show about an escort service in the beach cities area of Los Angeles.

In terms of the company’s financials, net cash flow has grown $4.180 billion in 2012 to $16.443 billion for 2016. This is a 41% increase per year on average. Not too shabby.

But what about the losses? The company has generated negative income in two of the last five years, and the net income it has generated hasn’t been that great, giving the stock a trailing price to earnings ratio of 187. Of course! The lower your net income, the lower you pay in taxes. Once money is paid out in taxes, that money is gone. The company has been smart enough to spend funds on employee wages, research and development, plants, equipment, and other tax-deductible expenditures that will help the company grow, keep net income low, and taxes low.

Back in 2007, I wrote an article about how Amazon is a Screaming Buy at 38.10 per share. I didn’t buy the stock at the time but I should have taken my own advice, as the stock took off and never looked back.

Disclosure: Author now owns AMZN.

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