Don't Let Amazon Sirius Up Your Portfolio
Sooner or later, we will all have the pleasure of paying a sales tax on mail-order products. It seems inevitable. A sales tax by itself is not a cause for concern. However, a price-to-earnings ratio of 100 is. Amazon shareholders are one quarterly earnings miss away from seeing their investment cut in half.
Yes, I know Amazon sells everything to everyone and they have a great Web site with Kindle featuring full color and it's so cool, yada, yada, yada. Do you remember how cool SodaStream(SODA) was about this time last year before they missed on earnings? If not allow me to refresh your memory.
Soda was/is going to change the way everyone drinks "soda" (or "pop" depending on your location). Lower carbon footprint and different flavors was to make Soda a must-have appliance in every home -- much like the bread makers and salad shooters you may find in your neighbor's yard sale every spring because it didn't sell in the previous one. Offer a quarter, maybe she will take it and you can begin storing it for the next 20 years.
But this time, it's different, yes?
No. Not only is it not different, it's decidedly becoming less different.
Amazon is increasingly selling digital low-margin products and few things destroy margins faster than selling a commodity item. When you sell a physical product, you are protected from competition by barriers of entry -- barriers like the logistics of moving products, storing products, ordering the correct numbers, boxing and shipping, returns, etc.
Digital products level the playing field and even call into question how much value a bookseller offers a publisher. It's not hard to imagine a digital supply chain becoming smaller when shelf space no longer matters. Anyone sitting in the basement of their parents' house can theoretically sell every e-book ever made.
At some point, Amazon is going to miss. Investors are going to wake up to the idea that they are the last ones on the bus. The time to get out is before the gap higher gets filled in like they always do. Try not to be one of the investors in Amazon who figures this out a day later than everyone else.