Dear Mr. Berko: In December, I paid $692 a share for 300 shares of Amazon.com because my stockbroker said it would go to $1,000 and then split 5-for-1. It’s now $622 a share. The loss upsets me, but I think I can handle it. Do you think this stock can return to my purchase price soon?
— M.S., Jonesboro, Ark.
Dear M.S.: Maybe.
Anyone who’d buy Amazon at $692 a share, or 550 times earnings, has to be a bit sozzled. Admittedly, Amazon’s sales growth in the past 10 years, from $8.5 billion to $107 billion, has been breathtaking. CEO Jeff Bezos knows how to generate revenue.
Amazon.com (AMZN-$622.42) is a textbook example of a disrupter, or what economist Joseph Schumpeter called an instrument of creative destruction. This is the concept by which new ideas and processes bring about the demise of old ideas and processes. AMZN’s low prices, its super-quick delivery system, its fast, efficient, courteous self-service and its unique supply chain have turned the retail industry into a battle ground for survival. Major chains such as Macy’s, Office Depot, Aeropostale, Barnes & Noble, Wal-Mart, Target, the Gap, Wet Seal, Deb Shops, American Eagle and others closed more than 6,000 locations last year.
Though Bezos knows how to generate revenue, he seems to lack the ability to maneuver those impressive revenues into respectable profits. Jeff has turned Amazon into a leading cloud service provider, and Amazon Web Services grew its revenues by 70 percent in 2015. But while competitors enjoyed profit margins between 23 percent and 30 percent, Bezos seemed happy as a lord with a 4.3 percent profit margin. Last year’s cost to fill numerous orders exploded by 26 percent, and spending on new technology jumped 40 percent. Thirty years ago, few of us would have imagined that success in the retail business would be dependent upon technology.
