Saturday, January 26, 2013

AMZN Wins the Internet Race

Back in the late 1990s, when internet stocks were at the height of investor minds, you had daily debates about who the long term winners would be in the internet revolution.  AMZN, YHOO, AOL were the big ones that people debated.  But later on, B2B and internet infrastructure companies became the hot thing.  Well, most of the B2B and infrastructure names have imploded.  So has AOL and YHOO, although AOL was saved by dumb management at Time Warner and YHOO had the most clueless management in the business making dubious acquisitions.  Giving up 20% of your company in the form of stock dilution to acquire Geocities?  And another 20% to acquire  Are you kidding me?  Mark Cuban must still laugh at the thought of selling his crap start up for several billion in YHOO stock.

I really thought YHOO would end up being the winner, because they were the best positioned on the internet, the center of everything, but they had no vision and they let GOOG steal their lunch.  I didn't imagine that the public would embrace online retail as much as it has.  It has turned Best Buy into AMZN's showroom.

AMZN has taken over and is now almost a monopoly in the space.  It is better than GOOG, which is solid, but on the internet, you have too many competing for a set amount of advertising dollars.  With online retail, being able to shop for everything in one place with deep selection is a huge advantage.  Aside from groceries and maybe clothes, almost everything is preferable buying online.  And when you get to AMZN's size, WMT's size, you have pricing power.  You can squeeze your suppliers like WMT does and sell things cheaper and still have the same margins as your competitors. 

Stocks are all about perception, the future, not the current P/E ratio.  Otherwise AAPL would still be at $700.  AMZN has that future where it can keep growing and become the WMT of the internet.  WMT's market cap is twice as large as AMZN.  I would not be surprised to see AMZN catch up and surpass WMT's market cap over the next 3 years. 

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