Amazon.com Inc. shares an all time high of $457.87 this morning as traders gave in to the temptation of a broad rise in the stock market and bet on Jeff Bezos’ firm ahead of its earnings reveal. Signals suggest that Amazon may be about ready to make its first real profit, at least according to the view of one analyst.
Justin Post of Bank of America highlighted Amazon Web Services in a report he published on the firm last Friday. He also mentioned that Amazon’s leaders were not as effusive in highlighting price cuts at the firm as they have been in previous years. That may mean, at least in Mr. Post’s view, that Amazon might be ready to start edging prices upward and finally earning a profit.
Amazon looks to pricing
For years Amazon has followed a policy of investing any surplus it records back into its business instead of booking it as a profit. Those investments have taken all sorts of forms, including the growth of the now profitable Amazon Web Services and the almost disastrous Amazon Fire Phone.
Price investments, which involve foregoing a big profit on sales in order to offer buyers a lower price on some goods, has been the largest eater of profits in the view of some analysts. Amazon has argued that lower prices across its e-commerce unit ensures buyer loyalty and give Amazon time to solidify the maximum size possible before market growth slows.
That theory has been accepted by those with shares in Amazon because of massive growth in revenue at the firm. A business needs to make a profit in order to have real value to those that own it, however, and some have been calling on Amazon CEO Jeff Bezos, to boost prices in e-commerce in order to secure that profit sooner rather than later.
Mr. Post of Merril Lynch says that that day may soon arrive. “Amazon de-emphasized pricing at this presentation and did not highlight all the historical price cuts,” he wrote, something that may be sending a signal that the firm is ready to exert pricing power in its businesses.
Amazon bets on Web Services
E-commerce isn’t the only area in which Amazon keeps prices low. In Amazon Web services the firm has out-competed every single firm in the space except for Microsoft Corporation .
John Blackledge, of Cowen & Co. said in a report authored on the firm last week that the cloud services business was, by an large, a two horse race between Microsoft and Amazon. The firm has the option to exert price power in the cloud as well as in e-commerce, but the firm may not be convinced to do that until it’s sure that the market is slowing down.
Amazon hit all time highs today because traders still believe that the firm could book a huge profit at any point, but that it simply isn’t ready to do so just yet.
Mr. Post of Merril Lynch thinks that a price rise, and a profit, might be around the corner, but long time investors in Amazon have been down that road many times before. Until the firm actually puts an annual profit down in an SEC filing, there’s no way to predict Mr. Bezos’ plans.
The first indication of that will come on July 23 when the firm reveals its earnings numbers for the three months through June.