Amazon stock knock becomes badge of honour
Robert Cyran
Amazon’s stock knock has become a badge of honour. Skeptics always derided the company as merely a retailer in fancy tech clothing. Yet the company once again turned in another sparkling result in the third quarter, sending its stock up 27 percent to an all-time high. With former tech darlings trading at fractions of theirs, the critique now looks like a compliment.
Of course, one shouldn’t downplay the company’s research and development skill. Amazon’s best selling item is the Kindle, its newish digital book reader. And the firm continues to invest in things such as web services, where it sells remote computing services to other companies.
Yet Amazon’s success resides more in its ability to use IT as a means to an end rather than a goal in itself. That target is to push lots of goods though its distribution network, upon which it has spent heavily. For example, recommendations based on algorithms results in more items in checkout baskets. Offering its site and logistics to third-party merchants bumps up sales too. As does continually increasing the number of goods it sells.
Amazon’s success is clear in the numbers. The 27 percent sales growth it turned in during the quarter wasn’t the result of Amazon taking a hit to its bottom line – instead, margins actually rose. There's little reason for this trend to end soon. Indeed investors have already baked substantial growth in, with the stock now trading at 54 times estimated 2010 earnings.
Selling more books, electronics and golfing equipment online never sounded particularly sexy – hence the rap against Amazon. Yet formerly hot areas such as databases, network storage and routers don’t sound particularly cutting edge anymore, either. Delivering sharply rising profits, however, will always remain in style.
Breaking Views
Final Bell
Coercive forces grip India...
Special Reports
The Troubled Asset Relief Programme has been a bigger success than was expected – but its critics haven't gone away...
Risk Encyclopedia
Also in this section
- New Zealand's 'Madoff' jailed for $13m fraud
- Malaysia plans new economic model for growth
- IMF: Tanzania has room for infrastructure funds
- Madoff family seeks dismissal of cases
- Australia welcomes China report into Chinalco de
- Schaeuble calls for closer Eurozone integration
- US bailout watchdog criticises Treasury over GMAC
- Chinese bankers told to curb pay to rein in risks
- Aer Lingus full-year operating loss quadruples
- US senators wrestle with Fed bank oversight issues
Most read articles
World Finance TV
Virtual Edition
In our latest print edition: Gruma's Chairman Roberto Gonzalez Barrera shares his experiences in growing and maintaining his business, and branching out into global markets.
