{"id":59145,"date":"2014-08-22T06:10:50","date_gmt":"2014-08-22T10:10:50","guid":{"rendered":"http:\/\/countingpips.com\/?p=59145"},"modified":"2014-08-22T07:15:28","modified_gmt":"2014-08-22T11:15:28","slug":"amazons-stock-cant-defy-gravity-forever","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/08\/amazons-stock-cant-defy-gravity-forever\/","title":{"rendered":"Amazon\u2019s Stock Can\u2019t Defy Gravity Forever"},"content":{"rendered":"
August 22, 2014<\/div>
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By WallStreetDaily.com<\/span><\/a> \"Amazon<\/p>\n

By Louis Basenese<\/a>, Equity Analyst <\/em><\/p>\n

Amazon<\/b> (AMZN<\/a>) has been basking in the glory of higher sales and share prices, thanks to a phenomenon known as \u201cshowrooming.\u201d<\/p>\n

That\u2019s when consumers hit their local stores to get an up-close look at a product, but then head home to purchase it online.<\/p>\n

Chances are you\u2019re guilty of this behavior, too, since an annual Harris poll<\/a> shows that 46% of Americans admit to showrooming (up from 43% the year before).<\/p>\n

For years, analysts perceived showrooming as the biggest threat to traditional brick-and-mortar retailers. And as the dinosaur in the business, Amazon has been the biggest beneficiary of this habit for years.<\/p>

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But is the company\u2019s entrenched competitive advantage about to backfire?<\/p>\n

Brick-and-Mortar Resurgence<\/h2>\n

For the first time ever, though, Harris chronicled a higher occurrence of the opposite trend. That is, reverse showrooming, or \u201cwebrooming.\u201d<\/p>\n

That\u2019s when consumers do research online, but then head to a physical store to make a purchase.<\/p>\n

\"Annual<\/p>\n

Granted, by no means are these behaviors mutually exclusive. Consumers do both. But the data does <\/i>bust the widely held belief that showrooming is the most prevalent.<\/p>\n

As you can see, the opposite is true, which indicates a much more significant and ominous development for Amazon investors.<\/p>\n

Simply put, traditional retailers are fighting back. And it\u2019s working!<\/p>\n

They\u2019re embracing consumers\u2019 desire to research purchases first by offering in-store Wi-Fi. Couple that with exclusive mobile app discounts, and they\u2019re winning back business.<\/p>\n

This isn\u2019t altogether surprising.<\/p>\n

As I shared on CNBC last fall, Amazon\u2019s cost advantage<\/a> has been eroding.<\/p>\n

With shipping prices on the rise and more states collecting sales tax from online purchases, items on Amazon could actually end up costing consumers more in the near future.<\/p>\n

Now, we\u2019re all suckers for the best deal. Especially in the wake of the Great Recession, which instilled a heightened cost-consciousness in us.<\/p>\n

Add it all up, and the offline option is becoming more compelling. And that spells trouble for Amazon, given its razor-thin margins and stratospheric stock valuation.<\/p>\n

At current prices, shares trade hands for more than 170 times forward earnings. Like Bon Jovi, investors in the stock are \u201clivin\u2019 on a prayer.\u201d Here\u2019s why\u2026<\/b><\/p>\n

Beware of Gravity<\/h2>\n

For as long as I can remember, Amazon\u2019s stock has been (over) valued based on the company\u2019s potential to turn a profit in the future. The rationale being, the more and more customers Amazon attracts, the more it can eventually<\/i> monetize that user base.<\/p>\n

After years of investing untold hundreds of millions of dollars in growth initiatives, the day of massive profitability still remains elusive.<\/p>\n

In fact, last quarter, Amazon reported<\/a> a much wider-than-expected loss of $126 million, or $0.27 per share. (Analysts expected a loss of $0.15 per share.)<\/p>\n

And the company is projecting even more<\/i> losses this quarter.<\/p>\n

Finally, investors appear to be growing impatient with Amazon\u2019s \u201cperpetual investment mode,\u201d as Standard & Poor\u2019s analyst, Tuna Amobi, puts it.<\/p>\n

For good reason, too.<\/p>\n

It seems that Amazon\u2019s master plan is to keep investing gobs of money in additional low-margin businesses.<\/p>\n

Take, for instance, AWS, Amazon\u2019s cloud-computing operations.<\/p>\n

The company plowed over $1 billion into it so far this year \u2013 with billions more expected. Bulls love to play up the profit potential of this division.<\/p>\n

Newsflash: Cloud computing is a commodity business, netting mere pennies per hour of server usage. It\u2019s an increasingly competitive market, too.<\/p>\n

Case in point: Since 2006, Amazon has cut its cloud-computing costs more than 40 times to stave off competition from Microsoft<\/b> (MSFT<\/a>) and Google<\/b> (GOOGL<\/a>). Yet the price wars continue to this day.<\/p>\n

Amazon\u2019s most recent foray into the smartphone market smacks of another ill-fated expansion into a highly competitive, notoriously low-margin business.<\/p>\n

I\u2019m sorry. But continuing to invest in low-margin business doesn\u2019t add up to meaningful profits in the end.<\/p>\n

Bottom line: The game of valuing Amazon based on its soaring revenue has gone on ever since the company went public \u2013 back in the heyday of the dot-com boom. But profits ultimately matter. No exceptions. So it\u2019s only a matter of time before Amazon shareholders confront this reality.<\/p>\n

Look out below!<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese<\/p>\n

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Article By WallStreetDaily.com<\/span><\/a><\/p>\n

Original Article: Amazon\u2019s Stock Can\u2019t Defy Gravity Forever<\/a><\/p>\n

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By WallStreetDaily.com By Louis Basenese, Equity Analyst Amazon (AMZN) has been basking in the glory of higher sales and share prices, thanks to a phenomenon known as \u201cshowrooming.\u201d That\u2019s when consumers hit their local stores to get an up-close look at a product, but then head home to purchase it online. Chances are you\u2019re guilty […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-59145","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/59145","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=59145"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/59145\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=59145"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=59145"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=59145"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}