What first caught our attention back in February was an Amazon (NASDAQ:AMZN) want-to-be stock called Overstock.com (NASDAQ:OSTK). This internet retailer did not have any friendly support. To make a long story short, OSTK cut out the middleman and went directly to the public with its IPO. The establishment never forgot and most likely wanted to teach OSTK a lesson though no foul play has ever been proven. After seeing what OSTK went through, newcomers will think twice before initiating a Dutch auction for an IPO.
Taking into account that there is no price support for OSTK, the stock still managed to pop 20% in February - on terrible earnings! This was an eye opener. There were several items that contributed to this; however we will concentrate on one aspect.
One of the reasons that we are long term bearish on AMZN is due to the competition factor. Even if our entire thesis in our previous article is totally incorrect, we would still be long term bearish on Amazon. Here's why.
You might have heard of the father that calls his son who moved to the middle of the Sahara desert to open a ski resort. The father asks the boy - so son, how's business? The boy replies: must be great because I already have 3 competitors!
To date, Amazon has no serious competition. The closest 'thing' that can be called a competitor is OSTK. We call it the 'thing' as our vocabulary is somewhat limited. At least the 'thing' has the necessary infrastructure to be transformed into a formidable competitor with relative ease. Of course it would take a Google, Yahoo! or Microsoft to do it, but that is a totally different issue. While investors were crying over the AMZN quarterly report and Q1/2007 guidance, the smart money was going back into OSTK. (Demmy Nancy Pelosi is a shareholder and she is no dummy).
Should AMZN ever become truly profitable, on a sustainable basis, you can guarantee that it will have serious competition overnight. One of the likely platforms to be used is OSTK. Based on the above, the smart money does not seem so impressed with Amazon's last quarter's fiddle. A sustainable jingle is what the smart money is looking for. Had OSTK appreciated along with AMZN; now that would be something to look into.
Apparently, when it comes to making money, the internet retail business is still worse than a ski resort in the Sahara desert - still no competition!
AMZN/OSTK 1-yr chart
Disclosure: No current conflicts though our position may change.