Leave Amazon Alone for Now

 | Feb 01, 2012 | 11:24 AM EST  | Comments
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amzn

,

pg

Amazon (AMZN)? Buy? Sell? I know you may not want to hear this, but I don't know. When I finished that conference call, I was scratching my head. Big-time.

First, I expected that the company, which told us that it would spend to win, would blow out the revenues. Nope. It gave posted unexciting revenues and made me feel that its growth is slowing.

Second, the company made more money than I thought it would, but I want to see accelerated revenue growth, and I am willing to tolerate earnings pain to get it.

Third, I had no idea that video games were that important. Yet, along with Europe, that was the big call-out for the weakness. In a high-growth stock, I don't want to hear any flaws but when I get them I want them to be explainable. I didn't get any explanation on this one at all.

Fourth, are e-readers the answer to the outyears (its growth in two, three or four years from now)? Or is the company losing too much money on the Kindle or the Kindle Fire? Procter & Gamble (PG) makes a little money on the razor and a ton on the blade. Is Amazon losing a ton of money on the e-reader and going to make small amounts on the content?

Buying Amazon is a leap of faith. You just don't know what's going to happen and you don't know whether its growth will reaccelerate when new e-readers are shipped and people start using them for pretty much all of the content that Amazon sells so well.

But to sell it?

Let's go back to that leap of faith. If you have believed in Amazon during all of its travails, you always made money. It's been a consistent winner on weakness. To sell it is to presume that this time is different and that its brilliant CEO, Jeff Bezos, has lost his way.

That has been a terrible bet.

That's why I don't want to do anything with it. I had been telling people not to own it ahead of this quarter because they would be spending so much that they would lose money and give up too much profitability.

I then figured you could buy in on the weakness. It's harder to generate an acceleration in sales than in revenues. The stock has now devolved into a wait-and-see situation and nothing more.

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