3 Reasons to Buy This Tech Giant Today

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Eric Bleeker: Amazon.com, another company with great leadership. It's definitely an expensive company, but it seemingly has its toes in about three or four transformative areas. What are you looking at right now on the buy side with Amazon?

Austin Smith: Well, although Amazon no doubt is a premium multiple company, it can be just a little deceptive. If you actually back out cap ex and apply a similar EBIT multiple as another king retailer, Wal-Mart, they're trading for about 40X earnings, which is dramatically different than what you're going to be quoted on Yahoo! Finance or Google Finance.

Of course you can never truly back out cap ex with a company like this because they constantly invest for the long term, but you can see just how skewing their heavy investments can be. If they ever reach a point where they stop investing as heavily for tomorrow -- and who knows, with [CEO Jeff] Bezos at the helm -- they actually are trading for a pretty fair multiple, given the sort of insane growth that they see; 30% top line consistently.

Another reason to consider looking at them is that this is a company that could apply wider margins going forward. Although their retail experience is as an ultra-low margin business -- selling things for the lowest price point, just cut it to the bone, expense-wise -- if you apply the sort of growth you get in wider margin avenues like AWS, this is a company that actually could see some margin expansion without having to raise prices on the retail end, which has always been a big knock against Amazon.

When they have margins this narrow, how can you possibly make serious money? Well, they can maintain their competitive advantage in the retail space if they can get big growth in one of their wider margin other divisions, AWS, which is growing at leaps and bounds.

Eric: I'll say, the guy who runs AWS has said that he visualizes this as a $50 billion business, which is equivalent to their entire retail operation right now.

Austin: Exactly, exactly.

A lot of things are going right for Amazon, but most importantly one of the reasons I would recommend buying Amazon is Jeff Bezos. He's the ultimate long-term focus guy. He's very Foolish, in the sense that he's going to ignore what Wall Street says today, and he's investing for tomorrow, five years out, even 10 years out. He's a visionary, long-term focused CEO.

He's got a huge stake in the company. Basically, his entire net worth is tied up in Amazon stock, so you'd better believe he's paddling in the same direction as you as a shareholder. I've seen a lot of things that I like out of him. I think he's actually one of the most compelling reasons to buy.

Eric: One quick question, though. You mentioned them taking on Wal-Mart. That is no cupcake. That being said, right now do you see it as a net distraction, taking on Apple, Google, and some of the other players? Microsoft, hell, with Nokia... just very dominant forces in smartphones. Is this a good move for Bezos, or is this going to be a net distraction? That's a really tough space.

Austin: No doubt a very, very difficult space. I think one of the things with Bezos is you have to have a little bit of faith with him because he's been able to expand Amazon's focus so successfully in the past.

This is a company that just started out selling books, and they've already been able to execute so well in other things like streaming video and their AWS platform, their long-tail retail experience, and the variety of other things that they've executed on so well.

While it may seem like a net distraction for less capable CEOs, Bezos has demonstrated a very high level of competence at taking on these huge tasks and just dominating these new industries. To another, less capable CEO, yes, but to a guy like Bezos who's executed so well in the past, I trust his vision and experience here.

Eric: Yeah. I think if you traveled forward in time from Amazon when it was a bookseller in 1997, it would look like a martian landscape today. The company has just changed so much.


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