Tuesday, January 31, 2012

Amazon Stock Haters are Missing the Point

Why all the negativity? 

When JCPenny's, (NYSE: JCP) Sears , Service Merchandise, and all of the other big mail order companies of the day spent hundreds of millions on 600 page color catalogs they sent to customers, they lost money on those. 

When Pottery Barn (William Sonoma, Inc)(NYSE:WSM) sends out catalogs, they are investing in marketing. The margin on the actual printed catalogs is all negative. 

When Victoria's Secret (NYSE: LTD) answers the dreams of all men by sending out millions of catalogs annually, they are investing in marketing. They are losing money on those catalogs with the goal of attracting sales of their core products, undies!

Amazon's Kindle Fire is basically an electronic catalog that does not have to be reprinted and re-mailed every month. The fact that Amazon is selling their catalog, for any margin is great. That puts the ROI hurdle much lower than traditional multi-channel merchants, like those mentioned above. 

Once in a user's hand, I predict that Amazon will see 3 times retail sales increase by Holiday 2012.  

Amazon's future is in content delivery - media, products, digital, everything.
Additionally, the Prime Model is facilitating conversion of customers to the Amazon streaming and on demand media business. As they grow in importance they will be able to leverage better contracts with content providers. They are also becoming content creators. I predict that Amazon will be a big competitor to Netflix (NYSE: NFLX) in the next couple years. Just like Target, which used to have it's eCommerce hosted on Amazon, Netflix is hosted on the Amazon Cloud. At some point, that relationship will split, as Amazon takes over market share.

The one-click model, the KISS model will prove itself. And once again Jeff Bezos will be thinking "I tried to tell them, but they didn't believe we could do it."

Target Price: I see Amazon (NYSE: AMZN) ending out 2012 at $248 (it is now at $176.67 in after hour trading).

this is not a trade recommendation. i am not licensed or otherwise authorized to give financial planning advice. this is just my O-pin-ion.
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