June 17, 1998
Stocks for Dad Part I
To Dad From Jeff
by Jeff Fischer (TMF Jeff)
Amazon.com
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>
1516 Second Ave., 4th Fl.
Seattle, WA 98101
http://www.amazon.com
$10 7/8 as of June 15, 1998 (post-split price)
Financially speaking, Dad, I've been a net loss to you -- a cash flow drain; a sinkhole; a throwing of money into the wind; a real Burt Reynolds type of investment. Statistics say that raising a child from infancy to age 18 can cost $200,000. Add college and it must cost, what, about $500,000? Plus, add to that my failed attempt at 17 years of age to qualify for the Brazil Grand Prix ($1.6 million), and you're drowning in losses on your investment in me, your number-two son.
So why not go for broke?
Mom would have bought America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> and Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %> if she had decided to invest in my Stocks for Mom advice for the past two years, and AOL has gained over 250% since May of 1997. Now, Dad, it's time for you to capitalize on your youth (being only 50-something) and on the many decades ahead during which you'll watch (from increasingly lovely locations, certainly) the world on the Web unfold. It's still a nascent world here in cyberspace, and it's an exciting though risky place to invest.
Keeping the risks in mind, online retailing is likely going to be much larger than anyone predicts, and though we shouldn't see the Internet really swing into action with the mass market until about 2005 or 2006 (based on some estimates), the years beforehand will be exciting times of hypergrowth for all of the leaders involved.
I present one current leader:
Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> has become synonymous with online retailing -- and not just for books, but, perhaps strangely, for simply buying things online. Being the pioneer in selling items quickly and efficiently and with value-added interaction, Amazon has grabbed the mindshare and early marketshare of the online retailing world. Selling books was only the beginning. The company is now selling music and will soon sell movie videos in earnest as well. Meanwhile, the ability to leverage an ever-growing customer base (the company had over 2.2 million individual customer accounts recently, up 50% in just one quarter) gives Amazon the potential for several revenue streams, from advertising to being a portal for other online transactions, to... well, TMF Cheeze hypothesizes best in this Post of the Day on Amazon. Give that a read, then come on back.
Ok.
Quarterly sales at the company have grown much like your expenses for me grew over the years, Dad. How much? Amazon's revenue has been $28 million, $38 million, $66 million, and $87 million in each of the past four quarters, the most recent ending in March of this year. That gives Amazon trailing sales of $219 million. With a current market cap (at $44 per share) of $2.1 billion, the stock trades at 10 times trailing sales and at 6 times the revenue run rate ($87 million x 4 quarters = $348 million). [Ed. note: This article was written on June 8. As of June 15, the price of Amazon.com stock was $65 3/4 for a market cap of $3.3 billion.]
Yes, Amazon is losing money and probably will continue to do so until at least the year 2000 (to be safe), but you know as well as anyone that it usually takes years of investment and work before you can turn a handsome profit. And although I never became financially profitable for you, you learned about the value of long-term returns with me, right? (My return to you has been spiritual, right? Or...?)
Well, anyway, you're taking a risk here with Amazon, but it's a much better option than having another child (the fifth!). I think that Mom would agree. Do your homework, Dad, as usual... and then make your own decision. See you in Brazil, 1999.
Happy Father's Day!
* A Stock for dad represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.