Bezos’ Long View Makes Amazon Stock a Buy on the Dip

Take a seat, said Amazon.Com (NASDAQ:AMZN) CEO Jeff Bezos in announcing quarterly earnings for Amazon stock last week.

Bezos' Long View Makes Amazon Stock a Buy on the Dip

Source: Mike Mareen / Shutterstock.com

Investors, like me, did so, while speculators bolted from the room.

Bezos said Amazon earned “just” $2.5 billion, $5.01 per share, during the March quarter. June numbers should be even “worse.”

Amazon’s cloud, warehousing and delivery services have become essential infrastructure during the COVID-19 pandemic. But this is “the hardest time we’ve ever faced,” Bezos admitted. All the $4 billion Amazon would normally earn in the second quarter will be reinvested in safety, he promised. Long-term shareholders “would expect no less.”

Since those numbers came out Amazon shares have dropped over $200 each. Once it does hit bottom, buy the dip.

Amazon Stock and the Coming Storm

From the left, employees are protesting in front of Bezos’ Washington D.C. home. From the right the Trump Administration is targeting the owner of The Washington Post.

Amazon.Com is at the center of the COVID-19 storm.

But try to imagine getting through this pandemic without it. Imagine working or finding entertainment without the Amazon Cloud. Imagine getting what you need without Amazon’s eCommerce services.

Just 25 years ago Amazon was just an online book shop, the cloud a collection of nascent technologies. It took investment based on a long-term vision to make today’s Amazon happen.

No other company has invested as Amazon has. AT&T (NYSE:T) saw the cloud opportunity and passed. Walmart (NYSE:WMT) saw the eCommerce opportunity and came late.

It took Bezos’ willingness to invest $1 billion/quarter, to start, in cloud data centers, to build Amazon Web Services. It took his willingness to do the same with warehousing and delivery infrastructure later in the 2010s. It took Amazon’s willingness to rent everything it owned to rival companies. It took Bezos’ insight to see cash flow, rather than income, as the key metric.

Here were the key points in the first-quarter report: Operating cash flow was up 66%, from $1.846 billion in 2019 to $3.064 billion. Revenue was up 26% from $59.7 billion to $75.45 billion. Amazon Web Services was up 32% from $7.7 billion to $10.2 billion.

Amazon is about growth based on cash flow. The story is still intact. Everything else is details.

Bezos Haters and Amazon Stock

Despite this hating Amazon, and Bezos personally, has become a Washington parlor game.

A House Committee wants Bezos to testify personally about how Amazon uses data. Some members are talking about criminal charges, as though Walmart, Target (NYSE:TGT) and Kroger (NYSE:KR) don’t use sales data to drive decisions on new house brands.

Trump is threatening to close the U.S. Post Office if it doesn’t increase charges to Amazon by up to 500%.  I can’t imagine a better incentive for Amazon to extend its existing delivery infrastructure. Sure, throw Amazon into that briar patch, B’rer Donald.

The labor complaints are real. In his first-quarter statement Bezos pled guilty to them. He promised raises. He promised regular cleaning of warehouses. He promised face masks for drivers and daily temperature checks. He promised COVID-19 testing.

This came too late for many workers. It also came too late for Tim Bray, a Canadian who has been at the center of major technology developments for 40 years. Bray quit as an Amazon vice president, loudly, after Amazon fired worker activists. He called the firing of whistleblowers “a vein of toxicity.”

The Bottom Line on AMZN

I agree with Bray.

But I also know it has never been Amazon’s vision to have an army of workers. The company wants to automate all that, as it eventually wants to replace drivers with robots. Don’t think you’re making a career out of being an Amazon driver or warehouse worker.

For now, Amazon’s business is being turned upside down. Speculators who sent the stock to all-time highs in the weeks before earnings were jumping the gun.

Amazon isn’t about the short-term. It never has been. It’s about driving technology in every possible direction, creating savings for itself and efficiency for society. If you want to take profits here, go right ahead. Investors should be staying in.

Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology 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.


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