Right now Amazon.com, Inc. (NASDAQ:AMZN) seems like the perfect stock. The company continues to grow at over 25% per year, even with quarterly sales measured in tens of billions. It seems reliably, if marginally profitable, and the latest earnings report blew past estimates. The company is expected to have nearly $60 billion in sales this quarter, taking nearly half of Christmas’ online sales. The AMZN stock price is up 50% on the year.
It is quite a contrast to early 2013, when I first started pounding the table for this stock and was told by supposedly smart people that it never made money and never would. Today 37 of 46 analysts scream buy it, and those who don’t just consider it too expensive at almost 300 times earnings.
All of which leads to the question, can Amazon do anything wrong?
The answer is that it can.
Amazon Makes Mistakes
Amazon makes lots of mistakes. Remember the Fire Phone?
Amazon has had a running battle with states over sales taxes and only recently succumbed, while trying to turn the resulting cost into a service. Scammers have long tried to use its services to peddle their wares, and they’re now doing it through email.
Amazon recently shut down an Indian price comparison site called Junglee. It has cancelled its effort to do a “skinny bundle” that would replace cable TV. Studio chief Roy Price was forced to resign amidst sexual harassment charges. Its attempts to create stores without people have, so far, proved unavailing.
Most Amazon jobs are low-paying and even dangerous. Amazon Web Services (AWS) has enormous capacity but also has many competitors. Its strength in basic infrastructure masks weaknesses in building the platform or applications, which competitors are using against it.
Lemons Seen as Lemonade
In the present environment, all these mistakes are seen to be either growth opportunities or irrelevant. And to an extent, they are.
But the first time Amazon makes a major misstep, as all companies eventually do, these kinds of stories will be repeated ad nauseum as evidence of rot.
If the world’s richest man disappeared tomorrow, if Jeff Bezos were no longer at the top of Amazon.com, the AMZN stock price might fall by 20% overnight. A failure of AWS (the system is more dependent on its largest data centers than rivals) could be catastrophic.
Amazon, almost deliberately, faces competition in every area. There are other cloud companies, food companies, media companies, distribution systems, infrastructure providers and retailers. Amazon is as vulnerable as any big tech company to a recession, or even a sudden reversal in stock prices, something else few people expect.
The Bottom Line for AMZN Stock
If you are buying AMZN stock today, you’re saying that none of the warnings matter, that there will be no substantial dips in the stock price and that the market will remain strong indefinitely.
All that may be true. I still have shares in Amazon stock. But I’m never going to put all my eggs in one basket, and you shouldn’t either. I was extremely bullish when Amazon was beaten down, and I’m now cautious while everyone else is praising it to the skies.
I’m not the only InvestorPlace writer growing more cautious on Amazon. James Brumley recently called the valuation “ridiculous.” If you’re thinking of buying AMZN stock, you should look elsewhere for big gains.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.