Why I'm Still Rooting for Amazon, Netflix and Google

Why I am still rooting for Amazon (AMZN), Netflix (NFLX) and Google (GOOG) in spite of their seemingly high P/Es?

You might find valuation along similar lines in other sites. Below are my two cents worth of opinion (I will update this post using financial ratios...).

Let's take a look at Amazon, Netflix and Google:

All of them have highly radical models of serving customers. Everything over the internet! It makes it easy to optimize operations, reduce costs and transfer benefits to customers. These firms have disruptive operational models. The best part of it is that they are highly energy efficient. The energy factor will be a major player in the oncoming years. The world is and has been moving towards energy efficient models. (Read the book The Bottomless Well to delve deeply into what I mean.)

Netflix: The Blockbuster (BBI) model is dead. Netflix stands a lone chance against growing, infantile online video sites such as Hulu, YouTube (GOOG), iTunes (AAPL), etc. Even then, Netflix might lose in my opinion. Why? The world is moving towards content at your fingertips (say Apple iTV). Netflix might survive for a period of time absorbing any adherents from the previous obsolete model before it becomes obsolete itself. Direct Online Content over the internet/TV is the future. However, Netflix is already providing the streaming high resolution video over the internet over XBox (MSFT), BluRay and some other devices. We will have to see how effective their transition will be. But will they outdo their competition such as Hulu, Youtube, Amazon Unbox and others? I am skeptical.

( I was also informed by Zenmacro that Redbox might kill Netflix due to cheaper costs and speed of delivery content (pick up rather than a one day wait). I think both Redbox and Netflix will be killed by content delivery over the internet unless they transition to such services. )

Amazon: Amazon is an awesome e-retailer who has constantly upped the game. Their revenues were impressive in spite of the Great Recession of 2008/09 and their outlook seems to be promising.

Why will traditional players falter against Amazon? They don't make much of a difference unless offering massive discounts (or places like Costco). As an audiophile, trying to shop at places such as Best Buy (BBY) / Circuit City was not very useful. Why? Useless staff who do not have answers beyond a certain basic capability. Outdated prices. At Best Buy, I saw the price for a 400 DVD player unchanged for three years. At Amazon, the price dropped by $160. For basic stuff such as groceries and other stuff, Amazon might not participate for now leaving other players to rip each other. Or Amazon might decide to do a WebVan ( without the bankruptcy. After all, this might be the right time. Some of the original ideas during the dot com bust might come to fruition now. They might have been ahead of their time then. Not so much now.).

Another factor is the Kindle. Despite its drawbacks, Kindle (and its competitors) seem on the verge of bringing together various factors for the businessman, techno geeks and most of the world. If Amazon gets their act together and adds features such as email (like the Blackberry), blog reading/updates, twittering, internet browsing, compatibility with other formats and other additional features, we have a killer device (That was a long list). I would just buy the Kindle and throw my laptop/netbook into the Hudson Bay. Kindle has got a good headstart; we will have to wait and see how the game is being played.

Another major source of revenue which will continue to grow is its digital media library consisting of streaming HD videos delivering to your computer, XBox player (and maybe Apple's iTV) ...Sounds like a competitor to iTunes. As Holmes would say, the game is afoot, Watson.

A problem is that Amazon is one man's vision (Jeff Bezos).

Google: Apart from a world class search engine which will eventually turn into SKYNET and destroy the human world, why do I really care about Google? Any other decade before this one, Google would have been a washout. Right now, Google is in the right business areas in the right time. What do I mean ? I am talking about the cool gadgets they have, of course.

Let's take the example of Google Documents. Though it has not caught on yet, the advent of netbooks and devices such as the Kindle will lead to Google Documents (+ Calendar + Gmail) replacing MS-Office easily. Lightweight, low memory footprint (both RAM and storage) and easily accessible, they will be the office package of choice. Though Google Documents might find it difficult to replace MS Office in the corporate environment, it will easily lead the pack in households/ students with these new fangled devices.

With the growing popularity of cloud computing, the corporate world might fold too. (We sold off our privacy and freedom of use to the devil long time back.) More ad revenue here and other space revenue possibly. Google might as well buy Garmin (GRMN) and start selling GPS devices.... I am clearly short MSFT. The next gen computers should not have much of an OS except to boot up and launch the internet. Everything happens online and is saved online. Microsoft has a better chance at hardware (namely, the Xbox) than its current software except for programmers.

Newspapers are dead; Their ad revenues is shrinking and their revenue model through ads and subscriptions is shrinking; citizen blogs are becoming ever popular. Of course, Google is way ahead with Blogspot and Google Reader. Google is well poised to tap the revenue growth in these new arenas, which will become the future. By the way, regarding privacy issues, noone is suspicious of a firm which touts "No Evil", fights the US government over privacy rights and capitulates to the Chinese government.

Conclusion

In my humble opinion, any company which conforms to this disruptive model combining energy efficiency, internet based delivery model, operational advantage, conforming to this new era of hardware, might be a WINNER. Now, you have the idea, do your own research and go stock picking.

This article also points out whats my thoughts of future technoological trends:

1. Smaller multipurpose devices - PDA like devices doing everything a laptop does,
2. Energy efficient delivery models,
3. Content/Information delivery at your fingertips,
4. Centralized computing.....

I will update this post with an analysis of fundamental ratios.

Disclosure: No positions.

Comments

[Alan Young:]

I especially like Google, because while people may be learning to live with less "stuff" and different kinds of entertainment, the need for information, and easy access to information, keeps increasing.

Google has been disruptive another way, too: their corporate culture. Paying employees to spend a portion of their time "goofing off" in the hope that something creative will come of it, for example.

May 04 04:30 AM

[LA Tech:]

For all of the author's speculation about GoogleApps-Docs-Mail-etc use in the future, the fact remains that Google cannot market those products very well at all.

Why can't Google move people from the FREE version of GoogleApps into the PAID version of GoogleApps?

Literally, less than 1% of FREE GoogleApps users will pay for the $50 per user per year version.

GoogleApps-Docs-etc will never replace MSFT in the work place unless and until Google can find a way for people to PAY REAL MONEY for those applications.

WHY? Because businesses don't use FREE services for mission critical business applications because there is NO SUPPORT for FREE applications.

May 04 07:06 AM

[JamesD:]

Have to disagree about NFLX. They are moving rapidly into the view-on-demand market. (New TV sets from LG and Visio will be Netflix-enabled right out of the box, which is brilliant.) The only thing that could derail them would be a failure to license studio content. (Rented DVDs are owned outright by NFLX, but digital rights require a license.) Will studios sign exclusive licenses with the likes of Hulu or YouTube? Not likely -- they'll want to sign with whoever has the biggest PAYING audience, and to my eyes NFLX stands alone. NFLX may not get exclusive licenses (and the FTC might be unhappy if they did), but they will get the content they need.

May 04 10:42 AM

[jimslade:]

sorry, loved the title of the article, but the content is complete drivel.

Google will be successful b/c of their 'cool gadgets'? Come on!
Google has not successfully diversified their revenue from paid search, despite the many things they are working on.
I would have respected a thoughtful discussion about the overall advertising market, the move towards online ads, google taking greater online share,some trend to point towards improved ad rates, etc.
Netflix, same thing. They've already recognized the shift and deliver via the 'net to multiple platforms. I know people who only do 'on demand' delivery via Netflix.
what you gave us was garbage.

May 04 08:33 PM