Amazon.com, Inc. (AMZN): When Will The Madness End?

Page 1 of 2

Amazon.com, Inc. (NASDAQ:AMZN) reported its fourth quarter results earlier this week, with revenue growing by 22% and gross margins higher than expected. Net income for the quarter was $97 million, or $0.21 per share. These results put the full year revenue at just over $61 billion, 27% growth from $48 billion in 2011.

Of the three quantities mentioned above – revenue, gross margin, and net income – analysts seem to only care about two of them when it comes to Amazon. They point to the relentless revenue growth and to the surprise jump in gross margin while casting off net income as a non-issue. Investors apparently agreed, sending Amazon shares soaring the next day.

Amazon.com, Inc. (NASDAQ:AMZN)And thus another chapter in the nonsensical journey of Amazon stock is written. I wrote previously about Amazon’s crazy valuation, but now I’d like to compare the company to two other giant retailers – Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT).

Revenue Growth

Amazon has been growing revenue at an astounding rate for the last decade while Wal-Mart and Target have settled between 3-5% growth.

WMT Revenue Quarterly YoY Growth data by YCharts

Amazon and Target now have similar annual revenues, with Amazon around $60 billion and TGT around $70 billion. Wal-Mart is much larger with annual revenue around $460 billion.

Gross Margin

Amazon has had a gross margin between 22-23% for the last decade. This compares to Wal-Mart’s 25% and Target’s 30%.

AMZN Gross Profit Margin TTM data by YCharts

This means that Amazon makes less money on each product sold than both Wal-Mart and Target. This makes sense given Amazon’s drive to offer the lowest prices.

Operating Margin

This is where things turn sour for Amazon. While Wal-Mart maintains an operating margin of about 6% and Target about 7.5%, Amazon’s operating margin dropped to just 1.8% in 2011 and to 0.9% in the TTM period.

WMT Operating Margin TTM data by YCharts

Amazon is sacrificing profitability for revenue growth. There can never be 20+% revenue growth AND high margins at the same time for Amazon, especially now that the company is much larger than it was a decade ago. It’s one or the other. An interesting article on Seeking Alpha proposes that Amazon’s sales growth in states where the company was forced to start charging sales tax was reduced substantially. This makes sense, since a lack of sales tax gave Amazon an automatic price advantage of 6-9% over traditional retailers. Further evidence of this trend is seen in this article from Reuters claiming that Best Buy Co., Inc. (NYSE:BBY) saw an above-average increase in online sales in states where Amazon recently started charging sales tax.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!