Seeking Alpha
Long/short equity, deep value, special situations
Profile| Send Message|
( followers)  

Just what everyone wants to do - replace a cracked toilet! After settling on a new throne for our bathroom, the guys at Home Depot (NYSE:HD) couldn't figure out how to order the toilet from their vender. A wasted hour after a long day and still no toilet.

That's when my Amazon (NASDAQ:AMZN) Eureka moment happened. As it turns out, you can buy anything at Amazon.com - even toilets. Sure enough, there was the same Kohler beige commode on Amazon. And for $30 less. No tax. Nice.

Amazon's been piling up sales at a remarkable pace as everybody acts on their own Amazon Eureka moment. (If you look closely, my Kohler purchase is included toward the end of the graph below.)

AMZN Revenue Chart

Amazon's growth hasn't slowed. It's accelerating: Year-over-year revenue growth was 40% up from its 10-Year Average revenue growth of 31% (Morningstar.com). Amazon has harnessed the internet to sell you everything imaginable. It's at the forefront of one of this century's most disruptive forces - on-line shopping.

Alright, I know. Amazon's valuation seems crazy. Nose-bleed 300 PE. Microscopic operating margin. Yet, the seller of everything everywhere has been on a tear as sales have climbed. In fact, increasing share price tracks the rising revenue...

AMZN Chart

... and ignores the underwhelming earnings.

AMZN Chart

Why are investors bidding up the stock? Because Amazon's total addressable market is seemingly endless. If you can buy a toilet at Amazon, they can sell you anything. Every year, Amazon adds more product lines to its web site.

The Next Big Market

There is a giant market on-line shopping hasn't touched yet - services. I wouldn't be surprised if some day you'll be able to purchase plumbing or electrical services on Amazon. Consider buying services from accountants, lawyers, doctors, handymen, or babysitters through Amazon. In a few years, I might be contracting to have my next toilet installed by a plumber through Amazon. Selling services on the web wouldn't be that hard to do. Providers could advertise at set rates with Amazon taking a cut. Maybe a quality guarantee and certainly a ratings system. Amazon would upend the service industry.

Amazon has a huge runway ahead of it, only limited by Jeff Bezos' imagination.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Source: My Amazon Eureka Moment