Amazon (AMZN) is up about 12% in the last month on no particular news — continuing the upward trajectory that has more or less become second nature for AMZN stock.
Year-to-date, AMZN has gained 27% — 8 percentage points better than the still-strong broader market. And over the last five years, Amazon stock has gone from under $40 to over $300.
With that in mind, are investors essentially setting Amazon stock setting up for an Apple (AAPL) style fall from grace?
Maybe — but AMZN is in a completely different boat than AAPL.
Can AMZN Do No Wrong?
Let’s take a step back for a minute, and pretend like we’re analyzing AMZN as if it were just any other stock. There are plenty of things that, in theory, should shake investor confidence in Amazon stock. Just consider:
- AMZN has posted a loss in two out of the past four quarters.
- In the current quarter, Amazon stock is slated to post another loss, this time of 9 cents per share. Just three months ago, analysts had been expecting a profit of 9 cents per share.
- Full-year estimates for AMZN in 2013 and 2014 have also been pared back by 30% and almost 20%, respectively over that same time period.
- Amazon stock also missed expectations in three out of the four quarters, including one loss that was seven times wider than analysts were expecting.
Yet AMZN stock has continued its climb upwards. And that’s because, quite simply, AMZN is not any other stock. It’s a story — and one that investors all want to be a part of.
Remember, Amazon began as the world’s largest book store but went on to revolutionize shopping via its huge, low-priced e-commerce website that now has 30 million customers.
AMZN also has a laundry list of acquisitions — including IMDb, Zappos and most recently GoodReads. Then there’s the Kindle tablet line (included revamped Kindle Fires and the new Paperwhite), streaming video content and shift towards warehouses and same-day delivery.
Bottom lime: It’s not like AMZN isn’t growing. Heck, revenue for AMZN had actually grown every quarter since the company went public in 1997, with 21% sales growth on tap for this year and the next.
It’s just that Amazon cares more about what’s next than about the bottom line. This is evident by the fact that AMZN keeps plowing more and more cash into research and development. R&D spending for AMZN has ballooned 333% since March of 2010 — almost triple the growth rate for the company’s revenue.
Of course, that doesn’t mean Amazon stock investors won’t want to see concrete results from AMZN eventually. But that’s a wholly different problem than the one that more or less sunk Apple stock. With Apple, investors were used to earnings beat after earnings beat. AAPL then posted a “rare” earnings miss — and followed it up with a few more.
AAPL stock investors soon began hunting for the door because they were worried about a lack of innovation from the company — and have still been worried about it even when earnings were back on track.
For Amazon stock, investors are used to red on the balance sheet and disappointing earnings. But as long as the innovation and sales growth is there, AMZN investors seem pleased — and seem to have no problem bidding Amazon stock even higher.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.