"We're making it up as we go along," says Wedbush's Michael Pachter, trying to model estimates amid Amazon's (AMZN) famous lack of detail regarding the costs of ventures like cloud-computing, Kindle, and same-day delivery of groceries. "Revenues are growing quickly so there's progress, but what are the costs for all these businesses? You tell me."
That investors give a free pass to nearly-profitless Amazon is great for consumers and bad news to the owners of companies like Netflix (NFLX), Best Buy (BBY), Staples (SPLS), RadioShack (RSH), Wal-Mart (WMT), and even Kroger (KR). But what happens to Amazon once the pass is revoked?
Analysts willing to venture a guess see earnings of $10.61 per share in 2016. To hit it, Amazon would need to continue to grow revenues at more than a 20% annual pace while expanding operating margins to 4% from 1% now. Plausible? Sure. But if the stock were to climb 10% per year over the next three, shares for the far more mature company would still trade at 40x those hopeful earnings.