Felix Salmon: The Media Narrative Roughly Amazon Is Out Of Command (Amzn)

From Slate, Apr 26:

By whatever normal standards, a quarterly turn a profit of $1.6 billion is an astonishing feat. But a companionship amongst a marketplace capitalization of $814 billion should non hold upward judged yesteryear normal standards. Amazon is flight high on Thursday, later a blowout earnings report. Its valuation has gone upward yesteryear merely about $78 billion merely since the unopen of merchandise on Wednesday, which volition fuel whatever issue of stories virtually how world-beating as well as unstoppable it is. Those stories, inwards turn, volition reinforce the tale beingness told yesteryear the stock market, inwards a virtuous wheel that is music to CEO Jeff Bezos’ ears.

The best gift yous tin give the axe give to whatever CEO is an overvalued stock. An ever-rising percentage toll effectively obscures whatever issue of sins: It cheapens the cost of debt, makes it slowly to drib dead on your employees happy yesteryear giving them options, as well as reassures the marketplace that everything is fine. It too sets the musical note for media coverage, which tin give the axe therefore furnish a tailwind, helping the companionship usage fifty-fifty improve on the stock market. The combination of a smashing story amongst a high-and-rising percentage toll is the perfect recipe to ensure that the default musical note for journalism surrounding the companionship ends upward beingness merely about shape of “why is this companionship therefore successful, as well as what does that hateful for the residuum of us?” 

Nowhere is this syndrome clearer than inwards the FANG stocks—Facebook, Amazon, Netflix, Google. (Yes, I know the corporate advert is technically Alphabet; the acronym wasn’t my idea.) It’s a constant drumbeat: These companies, amongst their soaring valuations, are transformative, disruptive, revolutionary. And, to a large degree, that’s true. But when that supposition becomes unexamined, sometimes both the stock toll as well as the narrative tin give the axe starting fourth dimension looking a fight unsupported.

Amazon is a perfect illustration inwards point. For 1 thing, its marketplace capitalization of $814 billion compares to cyberspace income, over the yesteryear 12 months, of $3.9 billion. That agency it’s trading at a price-earnings ratio somewhere due north of 200. Compare that to a ratio of virtually 24 for the stock marketplace every bit a whole. If Amazon traded on the same multiple of earnings every bit everybody else, its stock would autumn yesteryear roughly ninety percent.

The stock is supporting a narrative, which inwards plow is supporting the stock. And the narrative is, frankly, looking a fight shaky these days.

And its stock can autumn yesteryear ninety percent! In the summertime of 2000, Amazon was similarly valued at stratospheric levels, until a 29-year-old Lehman Brothers convertible bond analyst named Ravi Suria seat out a written report that said Amazon was facing a “creditor squeeze” that would endanger its mightiness to pay its debts. Suria’s analysis sent the company’s stock plunging yesteryear xx percentage inwards a unmarried day. Suria shortly was dubbed “reported every bit fact yesteryear media outlets. They pegged Prime membership at eighty meg people inwards Apr 2017, 85 meg inwards July, as well as 90 million inwards October. At that rate, it should hold upward 100 meg yesteryear now.

But inwards his annual letter to shareholders, Bezos revealed that Prime membership worldwide has straight off passed the 100 meg mark. Given that Amazon is estimated to hold upward closing inwards on xx meg Prime members inwards Deutschland as well as is too huge inwards the United Kingdom as well as Japan, that issue was lower than expected. And nevertheless the general reaction to the tidings was “Oh, wow, that’s amazing, what a large number.”...

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