Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Can Amazon Stop Growing?

There might be no limits to Amazon’s (NASDAQ: AMZN) capacity for growth. The latest financial data indicates that the “Everything Store’s” revenues increased by $8 billion during the fourth quarter of 2016.

Amazon reported $127.99 billion in revenues in September 2016 that grew to $135.88 billion just four months later, ycharts data indicates. That shows us that Amazon had a very merry holiday season that topped off a really great year.

Amazon’s Fantastic Year

The math shows that Amazon’s revenues increased by $28.98 billion over the course of 2016. The online retail behemoth began the year with $107.01 billion in December 2015 and finished with $135.99 billion just 12 months.

Amazon’s revenue growth for 2016 now exceeds the total revenues for Alibaba (NYSE: BABA); which reported $21.48 billion in revenue on December 31, 2016. The revenue Amazon added in 2016 is also larger than all of Macy’s (NYSE: M) revenues; which were $26.31 billion on October 31, 2016.

One has to wonder how brick and mortar and online competitors are supposed to compete. Amazon’s revenue growth is now exceeding all of their combined sales. That gives it leverage over suppliers comparable to that of Walmart (NYSE: WMT) and vast amounts of cash to play with.

Amazon’s Incredible Rate of Growth

What is even astounding is Amazon’s potential for future growth. If it repeats the 2016 revenue growth in 2017, Amazon would have revenues of $164.67 billion next year.

That will make Amazon, America’s third largest publicly traded retailer after Walmart and CVS Health (NYSE: CVS). CVS reported revenues of $177.53 billion on December 31, 2016 and Walmart recorded revenues of $484.6 billion on October 31, 2016.

Competitors should be worried about this because that growth is paying off for Amazon in the form of an incredible amount of cash. Even though profits are low; it reported a margin of 1.71% on December 31, 2016, Amazon is demonstrating the ability to maintain a very high cash flow.

Amazon’s Growth is Paying Off

Some of the latest financial numbers demonstrate that Amazon’s growth is paying off with a lot of cash. These numbers in particular should be of interest to competitors and value investors:

  • A free cash flow of $8.646 billion.

  • $16.44 billion cash from operations.


  • Amazon’s cash from operations grew by $4.52 billion over the course of 2016. It started with $11.92 billion in cash from operations in December 2015.


  • $25.98 billion in cash and short-term investments on December 31, 2016 (that number exceeds Alibaba’s revenues).


  • Amazon’s bank account grew by $6.17 billion in 2016. It reported $19.81 billion in cash and short-term investments in December 2015.


  • $2.371 billion in net income on December 31, 2016. Okay this a little low, but considering all the cash Amazon is accumulating it is good.

  • Something that dividend investors should note is that Amazon’s net income is growing dramatically. It reported a net income of $596 million on December 31, 2015.


  • That means Amazon’s net income grew by $1.775 billion during 2016!!


It looks as if Jeff Bezo’s business model is starting to pay off in a big way at least for Amazon itself. But what about investors, how will they fare in the face of all this growth?

Is Amazon Paying Off for Investors?

My answer to the above question is that it depends on what investors are looking for in a stock. If you’re looking for dividends you’re out of luck, Jeff Bezos does not believe in the, although might change at some point.

On the other hand, Amazon investors did receive a return on equity of 14.5% on December 31, 2016. That means they certainly made some money if they bought the stock and held it even though they took no dividends home.

Is Amazon a Value Investment?

Okay this and all the cash raise the big question: is Amazon a value investment? I would say no because of the high stock price: $846.18 a share on February 17, 2017.

Although some Buffett types might disagree here, because they will note that the Old Master likes to pay high prices for really good companies. They note that Amazon is a great company, which is true.

My take is Amazon is still over valued despite its growth. It certainly has the potential to be worth $846.18 a share; someday, but it is not there yet.

This means you should hold off if you’re thinking about buying Amazon. Its share price might fall and offer true value at some point.

One thing is certain; a lot of other retailers are still in for a world of hurt because it is obvious that Amazon is not done growing yet. The Everything Store’s growth is going to continue for a long time to come and create a lot more pain in the retail sector.