Goodbye Jeff Bezos, Hello Meme Dog
“That whole period is very interesting because the stock is not the company and the company is not the stock. So as I watched the stock fall from $113 to $6, I was also watching all of our internal business metrics – numbers of customers, profit per unit, you know everything you can imagine, defects etc. Every single thing about the business was getting better and fast.
So as the stock price was going the wrong way, everything inside the company was going the right way. We didn’t need to go back to the capital markets”
That was a short snippet from Jeff Bezos speaking at the Economic Club of Washington in 2018 where he opens up about how Amazon survived the dot com crash of 2000.
I can’t tell you just how important those words are to investors, or you – the reader.
In less than 90 seconds, Jeff Bezos identifies the biggest mistake I see investors make. Obsessing about the share price. I don’t think I can better sum up this point that offer the following statistic;
Amazon’s share price has declined
>10% 29 times
>20% 14 times
>30% 8 times
>40% 5 times
>90% 1 time
Since IPO, Amazon is up over 150,000%
26 years on and $1.66tn later Master and Commander, Jeff Bezos, has decided his mission is complete and it’s time to hand the torch over to Andy Jassy to keep Amazon in its, well, prime (the pun is fully intended).
For today’s piece, I’m going to stay away from the licentious meme stocks and put forward a case that good ol’ profit and eye-watering revenue might still be your best bet.
Spoiler alert – it’s about Amazon 😂
“The market is a very fickle and unforgiving arena. Sometimes it doesn’t matter if you can offer up $125.5bn worth of revenue, if the herd want a cloud-based meme coin, then you’re swimming upstream. “
I can throw hundreds of mind-boggling stats at you highlighting their true behemoth status amongst the titans of the S&P 500.
But something odd has happened to Amazon of late. Almost unnerving for some…
The share price has stopped moving.
Most uncharacteristic by their standards, indeed!
Year after year, quarter after quarter it’s become almost routine that Amazon turn in stonkingly good results and the share price has been in tremendous form, reflecting their colossal revenue growth.
Just look at the share price performance below if you don’t believe me;
2017: 47%+
2018: 20%+
2019: 18%+
2020: 73%+
This is all well and good, except the juicy gains have stopped! Since September of 2020 when AMZN reached all-time highs of $3,531 it’s been dead money really. Down a bit, up a bit and just floating sideways. Utterly uninspiring.
But why?
I’m not entirely sure is the honest answer, but I can only speculate why it’s lost its shine.
Is the underlying performance of the company still playing catch up with the share price? After such outstanding returns for investors, it’s plausible to think that maybe, just maybe, the share price is pausing for breath while the revenue and profit is trying to keep pace. Or as any lazy stockbroker would tell you, “It’s priced in mate!”.
It’s just not flavour of the month. Over the years, I’ve realised financial media can only really concentrate on a couple of major stories at a time. As Amazon lay quiet, the likes of GameStop, Bitcoin and whatever Elon Musk is tweeting about reign supreme.
And whilst retail investors and news outlets whip themselves into a frenzy trying to capture the latest short squeeze or FOMO trade, poor old Jeff Bezos has been ordered to face the wall and think about why he’s no longer the richest man in the world. I really feel for the guy, ya know.
So saddened by his fall from grace and having to pass the torch over to Elon Musk as the richest man in the world, Jeffrey Preston Bezos has decided to up and leave. He’s had enough of not being noticed and decided to walk away as CEO! “FINE! Have your LabradorCoin with Elon! See how you like it if I leave! For Goodsies!” is something which he hasn’t actually said but what I imagine his internal dialogue to sound like right now.
The latest quarterly results were incredible to say the least. As consumers, we bought $125.5bn worth of products from Jeff just in the last quarter alone! Let that sink in for a moment. If you stacked that sum of money into $100 bills, it would eclipse 1,250 Eiffel Towers on top of each other. But with the release of such eye-watering numbers came the announcement that Mr Bezos will be stepping down as CEO and thus the results were met with a slightly muted response.
Investor’s deciding to instead pile their chips into a meme coin.
The market is a very fickle and unforgiving arena. Sometimes it doesn’t matter if you can offer up $125.5bn worth of revenue, if the herd want a cloud-based meme coin, then you’re swimming upstream.
*admittedly, the dog very is adorable!
And so while the flavour of the month seems to be a picture of a Shiba Inu dog pasted onto a gold coin (famously known in the cryptosphere as DOGE), I’d like to take a moment and delve into the credentials of a slightly more traditional asset class – one whose profits can be spent in a pub for instance.
Without further ado, here are my 4 reasons why Amazon should be on your watchlist!
They are simply the best at what they do. Period.
The combination of unparalleled product line up and queue of distributors all vying for your business has created an uber-competitive environment which makes for the best possible consumer purchasing platform.
Teamed with it’s best in-class customer service and ultra-quick shipping, it rightly belongs at the very top.
I can’t think of a better example of capitalism at its finest. In seconds, no matter how obscure the product is, you can find the best version of it and at the best price. Backed-up by thousands of consumer ratings and reviews.
And when you build such an efficient well-oiled empire, you create a barrier to entry with it. Or a ‘moat’ if you like. An unrivalled logistics company matching the best products with cash buyers.
They are hoarding cash like it’s going out of fashion!
$42bn at the last count. And if the trend is your friend, this figure appears to grow by $3.8bn (on average) every year over the last 10 years.
Markets are innately volatile and through the good times and the bad, it’s comforting to know you could build a literal wall of cash around the company you’ve just invested in. Come to think of it, you could probably build an actual castle out of cash with their reserves.
Future growth.
You’d think by now that Amazon have conquered the world and topped out on future double-digit revenue growth, but think again.
By Amazon’s own projections, they’re forecasting $474bn in top-line revenue for this year and then a further $555bn for 2021!
And just as they tighten their stranglehold on their regular Amazon ecommerce platform, Amazon Prime TV is only starting to hit its stride and making a b-line for the on-demand TV market.
I haven’t even mentioned their cloud computing segment; Amazon Web Services (AWS). Potentially their most important to date!
With 33% of the cloud computing market share (the highest in the sector and notably higher than Microsoft’s 18%), this is actually their most profitable segment. To give you an idea of just how profitable this portion of the company is, AWS accounted for 59% of Amazon’s overall profit despite only representing 12% of company sales.
All of a sudden, selling millions of bread makers and Fitbits online seems rather insignificant compared to this cloud computing malarky!
Cloud service spending grew to reach $142bn in 2020 and the market is forecast to grow by CAGR 18% until 2026.
Share Split.
I’ll keep this short and sweet. Put simply, if the share price starts to get a bit ‘high’ and become out of reach to the normal Joe, they’ll just split the shares up into smaller bits.
Nothing material actually changes, but it allows the little guy to jump in on the action.
Let’s say Amazon do a 10/1 split. They’ll just split each share into 10 and each one will be one tenth of the former price.
In recent years, it’s become a bit of a market phenomenon and a self-fulfilling prophecy that investors like to buy the stock once it looks cheaper on paper.
‘Ooohhh, Amazon is only $330 a share now, looks cheap compared to last week when it was $3,300 a throw!’. Don’t ask me why this works, but in many cases it just does.
And now that Amazon is at the dizzying heights of $3,300, whispers and rumours are doing the rounds that AMZN could indeed be next in line for a split.
There are many more tangents I could have written about as Amazon is such an impressive company but we could be here for hours!
Having been a stockbroker for 10 years, I’ve never witnessed such rapid change in investor sentiment which I tried to sum up in a tweet earlier this week;
In the spirit of all things meme, I thought I’d end with;
Jerry’s Tim’s Final Thought
The culture for seeking out flash in the pan trades is rife at the moment and it’s all fun and games until, well, it’s not all fun and games and real money is lost.
I feel sorry for the retail investors who tried their luck for the first time with GameStop which is down 85% from its highs at the time of writing. I can’t imagine they’ll be returning to the markets in a hurry.
Which is a real shame.
Quite often we can find ourselves in an echo chamber, surrounded by a cacophony of noise telling us to buy or sell the latest viral meme stock. A new hot-shot town crier on Twitter will have their own interests at heart, not yours.
It can all be a bit overwhelming at times and sometimes hard to differentiate between those with an ulterior motive and those just to offer up an honest nugget of information.
If ever you’re in doubt. Just try this for an exercise;
Imagine there isn’t a share price. Put yourself in a world whereby if you need to sell out of your stock, you’ll need to find a buyer on the street.
You’ll quickly find clarity then. Do as Jeff Bezos once did. Look at the company, and not the stock. Because the company is not the stock and the stock is not the company.
I’m not suggesting for a moment that a dog meme can’t be a store of value which goes parabolic. But I’m also not suggesting it can’t go down 100% in favour of the latest billionaire celebrity pumped coin. And if faced with the prospect of having to choose what to buy in such a fast-moving Twitter trend market, I know where I’d place my own chips. Good old tried and tested revenue and profit.
If you’ve enjoyed this article and want to start your investing journey, feel free to reach out to me personally on t.sunderland@mittomarkets.com or call +44 (0)208 159 8985
Important Notice: When investing in shares, your capital is at risk. The value of the investment and any income from it can fall as well as rise, so you may get back less than your original investment.