Jeff Bezos was first spotted in public with his secret mistress on Oct. 30. Amazon.com Inc. (NASDAQ:AMZN) stock then dove 15 percent over the next two months and is now 20 percent down from its all-time peak.
Even though the stock is in the bear market zone and its charismatic founder’s personal life looks shakier week by week, I don’t think there’s a direct connection. Bezos, as a private person, can make mistakes. I used to live in the same building as he did on Central Park West and it was a strange experience. He literally never opened his door.
But I can’t judge his personal life. As an investor, all I can do is evaluate the company he built and the plans he has for the business.
On that basis, what Bezos does behind that closed door is literally a Jeff Bezos affair. What happens in the boardroom will make Amazon (NASDAQ:AMZN) shareholders a whole lot of money.
The latest quarterly numbers are proof of that. While I’ve been cautious on Amazon in the past, I now am convinced this will be a $3,000 stock in the near future, maybe even within the next year. Sure, its management warned us that Bezos is spending money again. Capital expenditures and hiring budgets are going back up to fend off a lot of eager competitors in both the streaming video business and elsewhere.
Narrowing profit margins make Wall Street nervous, but this is what Bezos does. I’ve talked about it a lot over the years — go back through the Bloomberg and Fox video archives and the cycle is always the same.
Bezos will spend a fortune over several years to conquer a retail category or build a new one from the ground up. During that period, it’s all about attracting revenue and building an aggressive market share.
Then, from time to time, he’ll rest and the pressure on the margins evaporates. Suddenly, Amazon earnings expand 100 percent or more as those new businesses flip from growth to profit.
Think of it as capturing efficiencies of scale from internal start-up companies, over and over. It is what Amazon does. It also is what companies like Alphabet (NASDAQ:GOOG) and Facebook (NASDAQ:FB) keep trying to do.
Right now, Bezos is coming out of a profit phase. Earnings nearly tripled over last year’s levels. Revenue gains barely cleared 20 percent.
Reading between the lines, revenue is going to re-accelerate. Bezos is grabbing for new markets again like he did in the dot-com years. And he knows it takes money to do that.
He has money. Even down here in bear market territory, Amazon is generating $3 billion a quarter in profit.
There’s no dividend or buyback program in place. All of that cash goes back into the business. We’ll see Amazon get serious about conquering the computing cloud this year. We’ll pay new attention to the stagnant grocery unit that acquired Whole Foods.
Instant Gratification for Bezos, a Long View for Investors
If Bezos wants to kill Walmart (NYSE:WMT), this is his moment. The ironic thing here is that he has wanted to do that for decades now.
Instant gratification has never been the Amazon plan. He reserves that for his private life. For shareholders, it’s all about the long win and the deferred payoff.
Granted, I run trading-oriented newsletters, so we can’t really tell people to buy and hold Amazon forever. They pay for guidance regarding when to buy and when to sell.
We’ve made a lot of money over the years in my Turbo Trader service by buying Amazon on the dips and carving the easiest profits out of its long-term journey.
Four years ago, for example, we bought Amazon at $535 and flipped it four months later for as much profit as the S&P 500 usually takes a year to earn.
Then we rotated the money into faster bets, always coming back to Amazon on the dip. We did it again and again, cutting out as much dead time as possible to focus on the rallies.
But for the long term, the quarter-to-quarter churn produces profits as if it was riding one big rally. I don’t think it’s over yet. As long as Bezos stays Bezos, shareholders can say what they want about his marriage while applauding his company.
