Over the last year, Amazon (NASDAQ:AMZN) stock has been inside a bouncy castle. Its trading range has been between $3,000 to $3,500 per share. AMZN stock opened May 17 at $3,232 — squarely in the middle of the range.
At that price, you’re paying 52.5x earnings to own AMZN stock, which has a market cap of $1.62 trillion on revenues of nearly $420 billion since May 2020. After years when Amazon was a pearl of great price, it’s almost reasonable.
That’s the lesson of today’s market. What worked last year still works, but it’s worth less because other things will soon start working. There are opportunities today in re-opening plays, manufacturing, raw materials and even banking. Investors are taking money out of their winners, like Amazon, and putting it to work in riskier endeavors.
Catalysts Ahead?
Andy Jassy becomes CEO in July, with Jeff Bezos moving up to become executive chairman.
Bezos is finally enjoying the perks of the centibillionaire lifestyle, with gargantuan houses, enormous yachts and a girlfriend who also has champagne wishes and caviar dreams. Like Tesla (NASDAQ:TSLA) CEO Elon Musk, Bezos wants to own outer space, although his spaceflight company Blue Origin is still running in second.
To keep the good times rolling, Jassy will be highly motivated to keep Amazon’s value increasing.
One easy way to do this is to copy Tim Cook’s moves after he became CEO of Apple (NASDAQ:AAPL). Jassy could follow in Cook’s footsteps and split the stock, which is not supposed to increase market cap but almost invariably does. A 20:1 split would still see shares selling at over $160 each.
He could also institute a dividend now that Amazon is regularly profitable. Amazon likes to invest all its cash flow, but that number increased to $67 billion for the 12 month period ending in March. Alternatively, Jassy could buy back stock. Any of these moves would increase investor confidence in AMZN stock’s long-term value.
Amazon Challenges
Like Cook, Jassy will also want to build his own legacy.
He could start by regaining some of the cloud market share Amazon has lost to Microsoft (NASDAQ:MSFT) and, more recently, to Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). Amazon could improve its application suites with acquisitions and launch new worlds with virtual reality. It could go deeper into healthcare or banking.
Amazon is already second in streaming, trailing behind Netflix (NASDAQ:NFLX). The present weaknesses in AT&T’s (NYSE:T) HBO Max and ViacomCBS’s (NASDAQ:VIAC) Showtime and Paramount+ may create bargains in that sector. Amazon could also get bigger in gaming by buying a company like Valve and connecting it to Twitch. Jassy could even split Amazon’s cloud business from the store, allowing the former to go after its competitors.
By investing across a broad front, Bezos made Amazon less vulnerable to the antitrust police. But governments are now hyper-wary of the company. They want more in taxes and they want to regulate Amazon’s behavior. These are real threats, and both investors and Jassy should remain vigilant.
The Best Days Are Still Ahead
Amazon is a mature company today, but still looks to be a sound investment.
Since Cook became Apple CEO in 2011, those shares are up 813%. That’s very impressive. But Bezos has it beat, with Amazon up over 1,300%, even with its latest downturn.
Jassy has a tough record to beat, but he has the assets to do it. From an organizational standpoint, he also has a clean sheet of paper. Bezos’ top lieutenants are leaving in droves.
I don’t think Amazon’s best days are behind it. It’s still a good investment, just a different type of investment than before. Its P/E will drop, but earnings will rise to meet it.
On the date of publication, Dana Blankenhorn held a LONG position in AMZN, AAPL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.