American Consequences - August 2017


Over the past 10 years, Amazon’s sales grew more than 800% from $14.8 billion to $136 billion. Its stock price has appreciated from a split-adjusted $1.50 at its 1997 IPO to more than $1,000, a more than 600-fold gain. Amazon’s ranking in the S&P 500 based on various measures gives you a good idea of how deeply in love investors have fallen with it... The massive company is ranked fourth out of 500 companies by market cap. Just three S&P 500 companies are valued higher today: Apple, Alphabet (“Google”), and Microsoft. And yet it’s ranked just 93rd for net income over the last 12 months. Amazon is the World Dominator of online retail, the World Dominator of cloud computing, and probably the World Dominator of other stuff I can’t recall right now. It’s one of the greatest businesses in history. I doubt its potential is anywhere near fully tapped. I bet one day, it will completely take over all the non-fun parts of its Amazon Prime customers’ shopping – everything from socks and underwear to groceries, pet supplies, lawn and garden... you name it. Then instead of getting $1,300 in annual revenue per Prime customer, perhaps it will hit $5,000 or even $10,000 per year. (Non- Prime shoppers spend about $700 each year.) I expect at some point in the near future, Amazon will send Prime shoppers a box once or twice a month, and they’ll decide what to keep and what to send back. It will become the operating system for shopping in your life. As long as you have Amazon Prime, you’ll

Three of the six manias in my lifetime featured profitless companies roaring to great heights. Each time, investors forgot there’s no such thing as an investment that’s good at any price.

never worry about running out of essential items again. Perhaps by valuing Amazon at 32 times all the profit it has ever earned, investors are discounting these future possibilities... in addition to the high improbability any competitor ever unseats it or even dents it. Though there’s only one Amazon, investors seem to think there can be more than one... Investors have fallen too deeply in love with companies trying to imitate Amazon’s formula for market dominance by growing fast while incurring huge net losses. It worked once, it can work again, right? The answer is effectively, no. The odds are way, way against you finding another Amazon. As usual, everybody’s looking in the rearview mirror. Galloway noted the huge losses being incurred by similarly visionary, fast-growing companies... Snap Inc. – the maker of image-messaging and multimedia mobile app Snapchat – grew revenues nearly 600% in a year, from $59 million in 2015 to $415 million in 2016.

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