Amazon.com, Inc. Is Winning, But It’s Not Fighting Fair

Amazon.com, Inc. (NASDAQ:AMZN) keeps growing and demolishing those in its path. But there’s a reason, and Amazon stock owners are ignoring it.

When privately-held grocery chain Albertson’s announced earlier this week it was acquiring Rite Aid Corporation (NYSE:RAD), the buyout was tacitly scored as another victory for Amazon. See, Amazon stock owners recognized the buyout for exactly what it was: another desperate team-up to slow down the never-ending invasion of the e-commerce giant.

It’s too little, too late for Rite Aid and Albertson’s to collectively regain relevancy with consumers at this point. But smaller companies simply failing to keep up with the times is not the reason Amazon is going to continue to roll over other, less-impotent organizations that stand in Jeff Bezos’ way.

The key reason Amazon is able to keep its competitors in check is simple: AMZN shareholders don’t care if the company ever turns a meaningful profit.

A Good Day for Amazon Stock

The timing of several pieces of news couldn’t have been better scripted… if you own Amazon stock, that is.

On Tuesday, Albertsons and Rite Aid announcedthey were teaming up under mounting pressure in both of their respective markets.

And it was widely pointed out that Amazon.com has already launched a private-label line of over-the-counter health products. Pain relief, allergy treatments and cold medicines sold underAmazon’s “Basic Care” brand already allow consumers to circumvent drugstores in some situations (and possibly more situations in the future). And Amazon’s acquisition of Whole Foods has already applied pressure to Albertson’s in the grocery sector.

Simultaneously, Walmart Inc (NYSE:WMT) dished out a fourth quarter earnings miss on Tuesday.

Analysts largely blamed the miss on a ramped-up effort from Amazon.com to keep the world’s biggest brick and mortar retailer from encroaching any further onto its turf. Underscoring that theory? Walmart’s online sales growth slowed to a four-quarter low of only 23%.

A superficial assessment leads to the conclusion that Amazon.com simply has a scale — and lacks the overhead costs — that don’t apply to Walmart, Rite Aid, Albertsons or any of the other outfits currently fighting an uphill battle against the online behemoth.

But that’s not the reason the AMZN stock has outperformed shares of most other names though. Amazon stock owners simply aren’t demanding profit from the company in the same way they would from any other.

A Look at Amazon’s Profits

Amazon spends money at a pace that would terrify shareholders of any other company, all in the name of growth.

Fans and followers (and owners) of AMZN stock will argue the premise, though most of them would struggle to refute it.

And the question that’s never answered is, when might the company no longer need to spend almost every penny it makes to buy the next quarter’s or next year’s revenue growth?

The hard data speaks for itself. Yes, Amazon just came off its best, most profitable quarter ever thanks to Amazon Web Services.

Take a closer look at last quarter’s and the full-year income statement though. Though operating income for Q4 was up slightly year-over-year, it only improved from 2.8% to 3.5%. Operating income for the full year was down despite the 30% growth in sales.



Source: Amazon

That’s a non-GAAP measure by the way. When you factor in all the debt and liabilities the company assumed to drive that growth, Amazon.com only turned 2.1% of its revenue into a profit. And sadly, that’s more or less been the norm for years.