For all those who missed the rocket ride on Amazon.com, Inc. (NASDAQ:AMZN) stock and have been looking for a pullback as an opportunity to get in, Donald Trump just did you a solid.
His Twitter Inc (NYSE:TWTR) war against the company has dropped the shares by 12.4% in just five trading sessions. That’s about $70 billion in market cap wiped away, knocking CEO and founder Jeff Bezos’ net worth all the way down to $114 billion.
That’ll show him.
Amazon is still not cheap. At its current price of $1,410-per-share, you’re still paying 308 times earnings, and the market cap is still more than three times last year’s sales of $178 billion. But Amazon can turn on the earnings spigot at any time, as it has done with its Amazon Web Services unit, and it’s still growing at over 20%-per-year, despite its size.
Bezos’ Open Sauce
What Trump doesn’t know could fill a library, but what he doesn’t know about Amazon could still fill a good-sized book.
First, Amazon does pay sales taxes, in any jurisdiction demanding them. It has even turned this into a profit center for the roughly 800,000 small merchants who fulfill their orders through it.
This is the genius of AMZN, its secret sauce. Like a good open source software company, it lets others buy and use everything it builds and uses. Merchants can buy all its services or just some of them. They can put all their marketing budgets into the site or just some of them.
Amazon began re-selling its fulfillment services in 2006, at the same time it launched what is now called Amazon Web Services. What makes Amazon powerful isn’t just its own sales volume, but the power it brings other businesses to grow.
When Trump attacks Amazon, or when acolytes like former Walmart Inc (NYSE:WMT) CEO Bill Simon urge it be broken up, he is not just attacking Jeff Bezos, but the almost 1 million smaller businesses that ride Amazon’s infrastructure (counting Amazon Web Services), that help fund it and that would be lost without it.
Amazon Predatory?
When Amazon is accused of being “predatory,” this usually means it is bringing this low-cost infrastructure to an ossified industry that is ripe for disruption.
Take healthcare. Please. AMZN is looking into healthcare because it now has 566,000 employees, more than Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) put together.
Salaries are Amazon’s biggest cost, and insurance is a huge part of that burden. Most large companies self-insure, paying a carrier the actual cost of employee care, plus a percentage of the total, the way you hire a general contractor to build an addition to your house.
Add to that the fact that Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) is huge in every other area of insurance except for health insurance, and has it 367,000 employees of its own, with JP Morgan Chase & Co. (NYSE:JPM) adding another 252,000, and you do have the base for a viable business.
Not a huge one, however, by the standards of the industry. Humana Inc. (NYSE:HUM), which Walmart is thinking of buying, covers 14 million people.
Which is the monopolist again?
The Bottom Line
Jeff Bezos would easily beat Donald Trump in an election, but he wouldn’t want the demotion.
Between 90 million Amazon Prime members, nearly 1 million small merchants using Fulfilled by Amazon, half a million employees and AWS’ customer base, he’s doing more for the economy as well.
Still, the law of large numbers says that Amazon’s growth will slow as it continues to grow. A 20% growth rate for 2018 would bring revenue to $213 billion.
It may hit that figure. Buy the dip.
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 danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.
