Amazon (NASDAQ: AMZN), which competes with the e-commerce segments of companies such as Yahoo! (NASDAQ: YHOO), eBay (NASDAQ: EBAY), Time Warner's (NYSE: TWX) AOL, and Apple (NASDAQ: AAPL), closed on Wednesday at $49.99. After hours, it plunged to $42.98, a drop of 14%, following its earnings report. Actually, I didn't think the numbers were that bad. Sales increased 31%, and earnings per share came in at 27 cents per share on a diluted basis. That performance represented a growth rate of 42%, and it was 2 cents ahead of Wall Street expectations.
As you can imagine, though, it's the fear of what lies ahead that's put pressure on Amazon's stock. Management has stated it intends to carefully assess its investment priorities. The economy is getting worse, and all retailers, online or brick-and-mortar, from Wal-Mart (NYSE: WMT) to Target (NYSE: TGT), are going to feel the sting of the careful-spending consumer.
Amazon is going to continue doing what it does best: namely, keep its corporate head to the ground and process those holiday orders. But I have to wonder if there is an opportunity here. If the economy is headed for further disaster, perhaps precipitated by the negative wealth effect (i.e., people becoming less inclined to spend due to their shrinking net worths), then Amazon might be able to persuade them that online shopping at its website is the way to go. Not only will it save on fuel costs, but the company offers free shipping on orders that meet a certain price threshold. That might beat a trip to the mall.
And with Amazon, you can get a lot of feedback on items. Management could make the argument that now is the time to be especially concerned about buying things without research and ratings. For instance, no parent wants to buy a toy or a video game that is going to bomb on Christmas morning. That's not a wise use of discretionary capital in a time of falling markets. A comprehensive marketing campaign highlighting the value of e-commerce during tough times might send a lot of shoppers to the site.
Of course, Amazon the company might be able to help itself, but Amazon the stock looks like it is heading lower, so I can't say I'd buy the stock here. It is one I'd consider buying once it got cheap enough. I don't think it's cheap enough yet, but I will keep an eye on it. We're in such a bearish/volatile mindset that trying to figure out where value and technical support intersect is becoming tougher and tougher. The best I can say for Amazon is that long term I feel it will drive value for shareholders.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
10-23-2008 @ 10:48AM
Mozelle said...
The media are driving this economy straight into the ground with their bad news and predictions!
People feed on this rubbish! All of America is not broke! There is still plenty of money to go around! Most people will not lose their jobs!
Good god you would think the end of the world is coming if you listen to the media. They thrive on this stuff!
Right now is the time to buy stocks! Load up the truck! Wall street is!
10-23-2008 @ 8:28PM
GeorgeS said...
By the way, amazon could do better in competing with ebay, regarding private sellers. At amazon you can't see a seller's complete catalog. Each item is individual with its own shipping. Amazon has a fixed rate for shipping. For orders to Canada those rates are all wrong, and prohibitive. Needs more attention, to compete with ebay.
10-28-2008 @ 2:38AM
Surplusstock.com said...
Amazon can do much better and when this economy slump starts to heal up, we can expect better return on investment on its shares.