Want some stock tips? Part 1 – Amazon
A friend recently asked me for some stock tips. I am not a professional trader or any kind of stock analyst. In fact, I know very little about trading stocks. I barely know what a P/E ratio is, and usually I don’t care about it. Read that again: I do not really analyze the financial performance of any companies I invest in. So take this advice with a grain of salt and don’t hold me liable :)
My policy of buying stocks is simple. I pick the companies that are market makers, and are or will be the market leaders ten years from now, and then I hold them, and buy more when they go on sale.
This post – it’s just my view of the future. I’m going to start by analyzing one company we all know and love – Amazon (AMZN).
This is a company that permeates our lives (even my grandpa has ordered things from Amazon), but most people have only a vague idea about their real business. Amazon has two core businesses (again, this is all my opinion and understanding and has no specific basis in financial data).
The first business which we all know and love is their retail store network. You can get anything under the sun there — and I have. I live in a city and I don’t have a car. It may drive the mailman nuts, but I get packages delivered almost every week. When I lived in a big apartment building with mostly older people, I was known as the package guy. They thought I was running some kind of shady business – but I was just shopping for my daily essentials. Whether it’s some knicknack I need for one of my many hobbies (photography, music, etc), household items, art supplies, and of course books – it all comes from Amazon.
Now let’s look at my generation – Millenials, Gen Y, Echo Boomers, whatever you wanna call us. Second largest generation in history (after our Boomer parents). More of us live in cities. We’re more affluent. We drive less. We lead busier lives. We’re phenomenally Internet savvy, and thus empowered to be market mavens. We’re connected 24×7 — some of us through multiple mobile devices. We desire customized shopping experiences. We carry a strong sense of entitlement combined with a lack of patience and an expectation of on-demandness (I want it now!)
Shopping online, whether at a desktop or on the go is the perfect solution for us. It wastes little time, it offers vast choice, and it gives us a customized experience based on the recommendations of others. What this adds up to is lots of money lining Amazon’s pocket as we choose to do our shopping with one click. And let’s not forget that many of us are starting to have kids. And that these kids are going to be ten times more connected than we ever were.
The second business, which most consumers just don’t know the first thing about – is cloud computing (cloud infrastructure, to be more precise).
Somewhere between 2007 and 2008, the traffic through Amazon Web Services (this is all of their APIs, or interfaces for programmers who build services on top of Amazon infrastructure) exceeded the traffic of their entire global retail network. Read that last line again, it’s important.
Is this (going to be) a *huge* business for Amazon? You bet your sweet behind. Amazon has been expanding its cloud business by leaps and bounds, providing many a startup and a few very savvy enterprises a way to save significant money while gaining lots of flexibility, by moving their infrastructure into the on-demand cloud.
With four years in the running, Amazon is pretty much the undisputed heavyweight champion of the cloud infrastructure market. Now, yes – Google is probably building something to truly compete with Amazon’s offering (App Engine was just a taste of things to come). But with enough lead time, market presence, and enough cash on hand (more than six billion) to buy up and coming startups in the space, Amazon is looking strong to remain the leader in cloud infrastructure, or at the very least a very strong second if it starts getting more heat from Google.
Amazon is up 338% over the last 5 years (that of course includes the recent financial crisis and recession). How’s your index fund doing?
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