Amazon has had a good quarter. It had sales of $1.13 billion, up one-third from a year ago in the same period. It earned $15.6 million on those sales, which translates to 4 cents per share, or 11 cents based on the accounting method Amazon uses.
My first blog was something I called "The Internet Bubble Monitor," which I set up in December of 1999. None of the companies that I put onto the monitor had any profits. I left Amazon off the monitor, and instead I focused on Yahoo! and some other companies that have since gone bust.
I think that with a retailer, you are better off using a price-to-sales ratio than a P/E ratio. Retailers operate on high sales and thin margins. If a retailer can increase the profit margin from 1.0 percent to 1.5 percent, that is a 50 percent boost in profits, which may or may not last.
If I read the numbers correctly, Amazon is showing a ratio of profits to sales of roughly 1.5 percent. As one of my commenters points out, the Christmas season matters a lot in retail. If Amazon can lift its profit margin in the fourth quarter while increasing sales, my guess is that its shareholders will be happy.
Look, the stock could be overpriced. But there is at least some probability that its performance will justify its current stock price. In 1999, the bubble stocks had no chance whatsoever of obtaining sales and profits to justify their stock prices.
Betting one's money on Amazon.com is not for the faint of heart. Yet, the odds favor that this company will only get stronger. It currently has its fingers in about every retail sector. And we must not forget that while on line buying is no longer in its infancy---this business sector is still no more than a small child. What will be the real tipping point? That will occur when one no longer has to spend roughly five minutes to complete a purchase. Just think what it would mean if we merely needed to place our thumb on a pad? Also, I am waiting for the day when we don't have to boot up a computer. Instead, it would instantaneously turn on like a TV set.
Oh by the way, I spend an average of around $75 a month on Amazon.com. We even bought our Apple computer from Jeff Bezo’s company. I have had only one instance of a package getting lost in perhaps over three hundred purchases. This matter was, though, quickly handled to my satisfaction.
Posted by David Thomson on October 24, 2003 05:30 PM | Permalink to Comment