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Monday, March 27, 2006

What If Bezos Is Right?

Amazon (NASD:AMZN) is often ridiculed for its lack of financial transparency by the media and analysts. Barron's (www.barrons.com) seems to take the company to task at least every other issue for something being wrong or misleading on its balance sheet. At least four brokerages have downgraded the stock in Q4 05 or early this year.

The company's growth has stayed respectable. Revenues for 2005 were almost $8.5 billion up from $6.9 million the year before. Net profit was flat. According to Value Line (www.valueline.com), Amazon had 55 million active customer accounts at the end of 2005, up almost 20% from a year ago. Looking ahead, Amazon guided for revenue between $9.85 billion and $10.45 billion. Not sexy, but $10 billion is $10 billion.

The phase "reinventing our business" usually comes from CEOs who have run out of ways to make their core business work. Generally, when you hear it from a company, it's not a good sign.

Jeff Bezos, the founder and CEO of Amazon hasn't mentioned reinvention as far as I can tell, but he may be quietly going about a partial overhaul of how Amazon makes money anyway.

In the last two months, Amazon has said it is working on a movie download service according to the New York Times (www.nytimes.com). One would think that Blockbuster (NYSE:BBI) or Netflix (NASD:NFLX) would be doing that, but not Amazon. They are also in talks with Vivendi Universal (NYSE:V) about a music download service with an Amazon portable device.

Amazon also opened a business (Amazon S3) that allows software engineers to get cheap, scalable, low-latency storage at very competitive prices. One might have expected this from Akamai (NASD:AKAM), but not Amazon.

And, to top it off, Fidelity is opening a premium store at Amazon to sell financial services.

I would be very reluctant to count Bezos out, even if he is secretive. With 55 million active customers and some visionary business plans, not every initiative has to work for Amazon to be in some new, solid, high-margin businesses that it was not in just last quarter.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also the president of Switchboard.com, which at the time was the 10th most visited site in the world, according to MediaMetrix. He has been chief executive officer of FutureSource, LLC and On2 Technologies, Inc., and in the past been on the boards of TheStreet.com and Edgar Online. He does not own securities in the companies he writes about.
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