By any conventional measure Amazon (NASDAQ:AMZN) is doing as well as its cloud competition.
Revenue is on pace to grow 20% year-over-year. Free cash flow is averaging $5 billion per quarter.
Amazon could pay off its $23.5 billion of long-term debt with a check, and still have $17 billion left over.
But the stock is up only 18% for the year, even after last year’s tech wreck. Apple (NASDAQ:AAPL), by contrast is up almost 68%. Even Facebook (NASDAQ:FB) is up 52%.
Why is Amazon suddenly so out of fashion?
Competitors Are Catching Up
One obvious reason is its past gains. If you put $100 into Amazon shares five years ago you would now have $465. That’s more than double the gains of its cloud rivals.
Another reason is profitability. Because Amazon pours the money it makes back into the business, it has always been less profitable than other cloud companies. In the most recent quarter, it still brought less than 5% of revenue to the net income line. Pure growth isn’t as fashionable as it once was.
Amazon is thus viewed as less of a cloud company than its rivals. The warehouse and delivery infrastructure draws a lower multiple from investors than pure cloud infrastructure. Products represent 60% of its sales. Amazon Web Services represents just 12%.
When fashions change again, you can argue, Amazon shares should zoom again. After all, Apple’s have.
Amazon Appears Tone-Deaf
But there’s another reason for the problems with Amazon stock. The company appears to be tone-deaf.
Despite building a new headquarters close to Washington, D.C. and pouring record amounts of cash into lobbying, Amazon is getting hit harder by the government than any of its rivals.
Part of this is because founder Jeff Bezos, either the richest or second-richest man in the world, remains personally in charge of his company. With billionaires out of fashion, he’s an easy target. Even President Donald Trump can hit him and not be hurt.
When Bezos says he’s not interested in running for office, it’s seen as arrogance. When he gives nearly $100 million to fight homelessness, it’s compared to his fortune and called chump change.
This means Amazon gets no credit for launching the boom in warehouse robotics. It gets no credit for signing big development deals with female showrunners. Analysts yawn when it makes its music streaming service free with ads. Even the reaction to a smart shelf that automatically reorders office products is “meh.”
Amazon doesn’t really favor its own products. It just “gates” them, meaning it doesn’t let anyone else sell them. Somehow, this is an antitrust violation? It’s creating billion-dollar opportunities in helping others sell on its website, which critics will say just means the website is too complicated. Amazon has one-tenth the grocery market share of Walmart (NYSE:WMT), but it’s Amazon’s ambitions that are seen as monopolistic.
The Bottom Line on AMZN Stock
Every stock goes through ups and downs, even if the downs are a creation of media and taste. Assuming the company remains well-run, these downs are opportunities.
This has been a down year for Amazon, but it can be fixed. Amazon can hire better lobbyists. It can re-think its corporate marketing. There’s nothing wrong with the business that an image makeover can’t cure.
Meanwhile, the trailing price-to-earnings ratio is at 78 and dropping, and AMZN stock is selling for just 3.3 times sales. The best bargain at Amazon this Christmas is Amazon.Com.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available 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, AAPL and MSFT.
