Amazon: Are You a Wealthy Bull or Stubborn Bear?

According to Amazon's first-quarter earnings slide presentation (available at the company's investor relations website), return on invested capital came in at 24% for the first quarter of 2011. It dipped to 12% in the most recent quarter. It could trend even lower this quarter.

It doesn't take an MBA to figure out that the return does not happen at the same time as or immediately following the investment. There's a lag time of at least a couple of quarters. So what happens when capex comes down, return on invested capital returns to more typical Amazon levels and profit margins rise exponentially because revenue today is far higher than it was five years ago?

Consider the following two charts. The first compares the first three metrics (capex, return and margins) over the last five years. The second isolates revenue. AMZN Capital Expenditures data by YCharts
AMZN Profit Margin data by YCharts

Revenue has more than tripled over the last five years, yet profit margin has not. That's what happens when companies act aggressively to seize long-term growth opportunities. That's the phase in which Amazon finds itself. Investors should not want or expect Bezos to say, You know, we've spent enough, let's leave our long-term future and some market share on the table to impress short-term thinkers with a better bottom line today. That would be patently absurd and a reason to ditch bullish sentiment.