Amazon was founded by Jeff Bezos 20 years ago. The company has yet to generate any meaningful net profit. When Amazon first went public, investment analysts declared that it would take the e-tailer years to get out of the red and into the black. Yet Amazon continues to attract investors after two decades without a significant profit. The stock has soared up from $1.49 in 1997 to $849 and still has plenty of room for growth.
Amazon has its hands in many pies. When you buy Amazon stock, you are buying a piece of its dozens of separate businesses. Here's what Amazon does in a nutshell:
While many like to criticize the company for a lack of focus, it has positioned itself quite well for the future. The question is not whether Amazon will generate a profit in 2017 and beyond. It is whether Bezos and his henchmen can convince enough investors to continue buying the stock.
Amazon's stock was priced at $766 three months ago. It was $552 a full year ago. The stock's climb over the past couple of years is partially attributed to the fact that one of Amazon's top competitors in the online video category, Target Corporation, ended its streaming service known as Target Ticket. Target Ticket couldn't compete with Amazon's Prime Video, Netflix and Hulu online video services.
In terms of financials, Amazon is currently priced far above its 52 week low of $538.58. It is approaching its 52 week high of $860. Yet there is still room to grow from its market cap of nearly $404 billion. Take a look at Amazon's balance sheet and you will find the company's cash and revenue are growing, but so are its liabilities. While the average business owner would frown at a net loss after 20 years of operation, it doesn't seem to matter much to Amazon investors. They are concerned with posterity and that is what Amazon's CEO and founder, Jeff Bezos has preached since starting the company way back in 1995.
Analysts are generally bullish on Amazon. The majority have either a "hold" or "buy" rating on Amazon's stock. Rewind the clock to 2015 and the mean price target ($392.64) was about $20 higher than the stock's price at the time. The stock soared in the two years that followed. It is clear that analysts are still bullish on the company's long term growth but some are beginning to question whether it is overvalued at its current $849 price.
Amazon.com is the most dominant online retailer in the North American market and will continue to put brick and mortar stores out of business. That Amazon might not turn a profit in the next year(s), does not matter. The moral of Amazon's story is that perception and posterity sometimes matter much more than past and current performance. Look for Amazon's stock to break through the $900 threshold in 2017 and continue its upward climb.
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