Mr. Bezos – Please Sir, I’d Like Some More

By David Nelson, CFA

Just some quick thoughts from last nights’ Amazon (AMZN) conference call.

Amazon (AMZN) may be at a crossroads with investors. No one is questioning the success of the company or Jeff Bezos vision. Unfortunately this vision demands levels of investment that wipes out profits and continues to force investors to look to the future for the ultimate pay day.

By some measures like Price/Sales valuation isn’t demanding. It’s just when you get to the bottom line that the wheels fall off. It seems clear the company could easily generate returns but of course would have to slow down some investments to deliver on that dream.

For the moment it doesn’t look like management has any intention of taking that route and may be willing to push even further. The 3rd quarter spending outlook was a surprise and seemed a concern on the call. Management mentioned several times that AWS or Amazon Web Services saw usage growth of over 90% however it was also clear there were significant price cuts.

Amazon has been given the benefit of the doubt ever since their inception. The faithful have defended the company saying that all they have to do is slow down cap ex and the bottom line is going to grow. Who can blame them? The staggering performance since they came public speaks loudly.
However, a 10% decline in after-hours seems like a strong message from shareholders that they’d like a little more on their plate. Oliver – Please Sir, I’d like Some More.