Devitt lists a number of potential 2007 and 2008 catalysts for Amazon shares:
- Slower technology and content spending.
- Slower headcount additions.
- More selection.
- More retail categories.
- More services.
- More international expansion.
- More fixed cost scale driven by improving revenue growth trends.
- Lower logistics costs due to lower energy prices.
- Less sales and marketing spend as a percentage of GMV (gross merchandise value.).
“At its core, Amazon is a technology company that happens to focus on the retail vertical,” he writes. “Amazon offers a more capital efficient, centralized alternative to the traditional retail method of ‘growth by the addition of store footage.’ In fact, both Amazon and eBay (EBAY) trade for material discounts to Target (TGT) and Wal-Mart (WMT) in a free cash flow basis…We are unaware of any other $13 billion retail business growing organically (think same store sales) at 26% with an ROIC [return on invested capital] north of 20%, capex/CFO [cash flow from operations] of 25%, and a forward FCF [free cash flow] yield of 4%…In our view, this business is misunderstood, is unique, is well-positioned, is solely focused on its customers (consumers, sellers and developers) and is undervalued.”
Amazon today is up 73 cents, at $37.75.