2015: The Do-or-Die Year for Amazon (AMZN) Stock

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E-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) fell steeply out of favor with investors in 2014, as they bemoaned the company’s inability to churn out profits despite revenue that analysts expect will approach $90 billion on the year.

2015 the do or die year for amazon amzn stockAMZN stock is down 23% in the last year alone, off more than $100 a share from its all-time-highs at $408. S&P Capital IQ is calling for fourth-quarter earnings of 25 cents per share, which would only serve to lessen Amazon’s full-year 2014 loss to 54 cents per share.

If those estimates are even remotely close to being accurate, Amazon’s EPS in the last four fiscal years combined will come in below $1.50.

You can’t blame investors for being fed up after years of patiently driving AMZN stock higher, thinking good things were around the bend. But if Amazon doesn’t turn the ship around and show that it cares about the bottom line, we may find that the exodus from AMZN stock is just in its early phases.

While it’s great as a consumer to see a company like Amazon plowing piles of cash into research and development to stay on the cutting edge of new technologies, as an investor, it’s a nuisance. I briefly lamented Amazon’s spending problem last week, noting that:

“From a same-day delivery service, to testing delivery by drone to its failed smartphone to launching its own line of diapers, there doesn’t seem to be an endeavor on this earth that AMZN won’t spend millions of dollars on.”

Despite CEO Jeff Bezos’ tendency to splurge, Wall Street banks seem to be warming up to the possibility of an AMZN stock price rebound. Citigroup upgraded Amazon stock from a “neutral” rating to a “buy” on Tuesday, hiking its target price from $325 to $354 — some 20% higher from current prices.

Citing the e-tailer’s attractive valuation and prospects for margin improvement, he echoed the bullish sentiment of Goldman Sachs, which on Tuesday recommended buying AMZN call options ahead of the company’s Jan. 28 earnings release.

AMZN stock added more than 2% by midday Tuesday, buoyed by the confidence of the prominent research firms.

Amazon Makes E-Readers and TV Shows. Now Make Money!

I do think that Amazon, the company, is a budding empire. Amazon Prime signed up 10 million new members over the holiday season (myself included); Kindle Fire sales for Black Friday 2014 tripled from the previous year; the Amazon Fire TV Stick became “the fastest-selling Amazon device ever”; and AMZN sellers sold a record 2 billion items in 2014, cashing in on the pervasive e-commerce platform only Amazon offers.

On top of all that, AMZN just signed legendary film director Woody Allen to write and direct his first TV series, a half-hour comedy set to begin next year. It will air exclusively on Amazon Prime Instant Video, the company’s streaming-video service, for one season. The move further illustrates Amazon’s desire to go head-to-head with Netflix, Inc. (NASDAQ:NFLX), which became a household name in recent years as the company enjoyed first-mover advantage in the burgeoning business of streaming video.

Amazon is truly doing some amazing things. But whatever value Citigroup saw in AMZN stock at today’s prices is lost on me. With 2015 EPS expected to come in at just $1.28, shares are trading at roughly 230 times forward earnings — even after the yearlong selloff.

Amazon needs to improve its margins, and quickly. Investors are done settling for pennies in profits (if any) with Amazon still at sky-high prices.

Unless Amazon scales back on needless spending and listens to its investors — and there is no historical track record to suggest that will happen — I would stay away from this stock, even in all its sexiness.

Either way, 2015 is the do-or-die year for AMZN stock. If the company can’t string together a few impressive earnings beats to start off the year, Amazon’s stock price will continue spiraling lower.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.

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