Amazon.com (AMZN) came out with a new set-top box, but I doubt the box will light up AMZN’s profits. Set top boxes are nothing new, and rarely have they found success in the real world. The best boxes for your TV continue to be cable boxes and video game consoles, like Microsoft’s Xbox 360 and Sony Playstation. Gaming systems not only let you play games but also let you watch movies and videos from Netflix, ESPN, YouTube and Vevo (which most cable boxes aren’t yet capable of).
Amazon’s Fire TV will give you access to video aps and will allow Amazon Prime members to see movies from Amazon’s library right on their TV — this is the best perk of Amazon’s Fire TV. Amazon’s set top box will sell for $99, and that’s probably what it costs to make the device. The perk for Amazon is it will help get more people to subscribe to Amazon Prime.
Honestly, the box isn’t going to help Amazon’s profits much — if at all. I compiled the data for the charts below on February 16, a month-and-a-half before the device was announced. Since then, earnings estimates for AMZN have stayed relatively steady. They haven’t moved much. At all.
Since Amazon’s Fire TV probably isn’t going to help the bottom line, let’s shift our focus the AMZN stock, and see how good it is.
One Year Chart
AMZN is a tough stock to value because the company is constantly investing in itself and sacrifices current profits for future growth prospects. Management hasn’t come close to hitting annual estimates in years. Here we see the company is expected to make $1.91 this year. In my 2002 Q2 research I see the company was expected to make $5 in 2014.
I used to own AMZN stock. I bought it at $118 in 2009 and sold it for $126 in 2010 (because estimates were falling). The stock kept rising as astute investors started valuing the company on what it could make someday, instead of what it’s making today.
My goal now is to get back in AMZN, at a good price if I can. Perhaps this stock market correction will give me that opportunity.
Fair Value
The problem is we can’t value AMZN with P/E ratios. In all likelihood, the stock’s not going to get down to a reasonable valuation. My fair value here shows the stock to be worth $212 two years from now. I don’t think it will go that low.
Sharek’s Take
Amazon.com is a growth stock — if you track the sales instead of profits. I believe it to be a must-own for growth stock portfolios, the problem is the stock seems too high to buy (especially using standard valuation methods). If you own it already, hold on. It’s tough to tell how high AMZN can go, and from experience I know that if you get out you’ll probably regret it later.
What’s a good price to buy Amazon at? The stock was $312 today. Looking at the chart, the prior resistance ($275) now looks to be support. With the stock market already in a nasty correction, AMZN could touch $275 and bounce higher. If it does I think that would be a good entry point, or for me reentry.
View the Earnings Table here.View the Ten Year Chart here. View the Profit History here.
