Rule Breaker Portfolio

Rule Breaker To Buy AMZN
September 08, 1997


Buying:

AMAZON.COM, INC.
Nasdaq: AMZN
Type: Small-Cap, High Growth
Closing prices: $36 bid, $36 1/4 ask
http://www.amazon.com

Market Cap: $856.8 million
Trailing 12-month sales: $56.5 million
Price-to-sales: 15.1
Trailing 12-month earnings per share (eps): ($0.61)
Next quarter reported: Q3 '97 (Sept.), around Oct. 20th
Consensus EPS for third quarter: ($0.45e)
Consensus EPS for fiscal year '97 ended Dec: ($1.34e)
Consensus EPS for fiscal year '98 ended Dec: You tell us
Fool Ratio:N/A

Trade: Buying $11,000 worth of shares

OVERVIEW

Moving forward Foolishly into another small-cap, high growth stock...

April 17, 1997 marked an unfortunate day in Foolish history. That was the day we raised $34,000 in cash through the sale of partial positions of America Online and Iomega. Those two stocks had become so overweighted in our portfolio that any flinch they made in either direction dominated the overall movement of the Foolfolio. This unfortunate or fortunate reality (depending on your viewpoint) was indisputably undermining the educational intent of our Foolish portfolio, particularly for many new readers who hadn't been around when AOL and Iomega became Foolish. So we made the partial sales (still keeping those two favorite stocks our largest holdings), intending to get that money right back into the market in short order.

It is our failure to do so that marks that day as our single most unfortunate investment mistake of 1997.

We don't regret toning down our commitments to AOL and Iomega -- as much as we love the stocks, we feel better about them making up 33% of the portfolio, rather than 66%. So, we suspect, would most people -- and we say that even with the knowledge that since our sale, AOL has risen from $46 to $76, while Iomega has risen from $18 to $28.

What we do regret is that we've made a grand total of only one purchase since then, our successful buy of Innovex (up 19% since purchase, vs. the S&P 500's 5% return). But that was only for $9,000, meaning that $25,000 (or about 16% of our portfolio) has been sitting in cash during a great bull market year. If you're looking for the number one reason behind our 1997 underperformance so far, look no further than our failure to be fully invested. We'd be ahead of the S&P 500 right now if we'd just had the free cash invested in the portfolio's overall return since April 17th. Oomph.

But 1997 ain't over yet. In fact, we still have almost four months left to preserve our record of beating the market every year since our online debut (1994, 1995, and 1996). We'll keep our fingers crossed that we get some help from our newest purchase, AMAZON.COM (Nasdaq: AMZN), the premiere Internet book retailer. Of course, as we're patient investors who buy with the idea of holding on to our latest pick for at least a year or two -- if not indefinitely -- we're not buying Amazon because we particularly care about our portfolio's 1997 fourth-quarter returns. We're buying Amazon because we like the company and its brand name, we like the business, we're happy customers, and we believe AMZN is well positioned to earn Foolish investors good long-term rewards. Hence the $11,000 down on the table to another dynamic, small-to-midcap growth company.

THE BIZ

Amazon.com doesn't call itself "Earth's Biggest Bookstore" without good reason

Amazon.com's Internet "sales floor" offers 2.5 million titles; the largest chain book store offers 170,000 titles; the average mall store, only 25,000. Of Amazon's offerings, 1.5 million books are in-print books, and one million are the most popular -- and harder to get -- out of print titles.

In the latest quarter ended June 30th, 1997, customer accounts at Amazon.com grew to 610,000, an increase of 79% from 340,000 at the end of March. Alongside with customer account acquisition, it's great to see that repeat customers accounted for more than 50% of orders placed during the quarter ended in June.

People tend to see book selling as a low margin, commodity business, and point to Barnes & Noble and Borders Books as examples. Amazon has low overhead compared to these retail giants, though, which are building coffee-serving mega-stores for every city in which they want to sell. As one Fool on our message boards wrote of the coffee bars, wooden tables, and air conditioning at retail stores, "I love Barnes & Noble. I go there to browse. I go to Amazon.com to buy." Of course not everybody is going to shop like this. We enjoy browsing AND buying books at Barnes & Noble as much as the next guy, but for out of print or difficult to find books, or when there isn't time to head out to the store, we're clicking our way to Amazon.com -- to the one location that it owns.

Amazon doesn't need to worry about building a new store every time that it wants to gain more sales, or increase market share. The company operates out of bare-bones headquarters in Seattle, and it is also opening a new storage facility on the East Coast. In fact, it would be impossible to offer 2.5 million titles any other way. Amazon's retail store is constructed of programming language, and little more. It's held up by servers and networks. It reaches every corner of the earth with little effort. Amazon will never need to "break ground" in order to expand its "shelf offerings." Selling its books over the Internet only, the company only needs to worry, essentially, about one thing: to SELL, baby, SELL -- and in great volume.

Most of Amazon.com's books are ordered directly from distributors or publishers and sent to customers within two to three days, but with a new policy the company aims to have 95% of books to customers within one day.

strategic agreements...

In the latest quarter the company made significant progress in setting itself up for greater future sales: Amazon signed deals with three of the largest search engines on the Web, those of Yahoo!, AOL, and Excite. All three of these sites will offer Amazon.com as the place to go to buy books from their search engines. Also, Amazon was granted a button on AOL.com's homepage -- the most visited page on the Web. The deal with AOL is three years long. AOL has nine million members, and just added another 2.6 million with the acquisition of CompuServe. Amazon.com also signed a deal with Prodigy.com to be the exclusive bookseller on that site's shopping network, as well.

AMZN also allows anyone on the Web to sell books through Amazon.com, and pays them a commission to do so. This allows for Web pages of any interest to link readers to books at Amazon on their topic of interest. The Web site operators are then paid a commission for the sales that result. This is one smart and "open" way that Amazon is using the Web in order to make it its home -- all of it.

the competition...

Competition in the bookselling world is a given, with Barnes & Noble and Borders being two large names that are working to build a presence in the retail Web business as well. But the established reputations of these companies may hurt as much as help, when it comes to Internet retail. Neither company is thought of as the online firm from which to buy books. Already Amazon.com is filling that "mindspace" with consumers. Amazon has the early lead in having the most complete services and product offerings on the Web, while Borders won't be up and running until around Christmas time, and Barnes & Noble's selection pales in comparison, offering 1.5 million titles fewer than Amazon.com. Importantly, Amazon only needs to worry about its online business, not its hundreds of retail locations as well (and the costs involved). At least in theory this means that Amazon.com can sell books at a discount to the competition and still maintain its margin goals. The company sells books at up to a 40% discount.

Perhaps most important for online book sellers is the community that they build. Amazon.com readers are encouraged to post their own reviews on books, and authors are encouraged to write to readers, as well, and share their thoughts. The ongoing conversation is creating community -- people are talking more and learning more at Amazon.com than they ever might by hanging out at a coffee table in Borders. Sure, your chances of finding a good date are better at Borders or Barnes & Noble, but you can still go there for that. Of course, Barnes & Noble is working to build online community, too, using many of the features that Amazon.com has used. There is no monopoly on community, but possession of mindshare and market leadership are essential to building the best and largest community, and Amazon.com has the early advantage.

All told, the book industry is enormous and can stand some competition. The Internet arguably represents the best way in which the world can find and buy books, easily and quickly. Online commerce is growing at an incredible rate, and we certainly don't think that is going to change anytime soon. It only continues to grow larger. Meanwhile, is Amazon.com going to continue to sell only books as the years go by? Already the company has addressed the possibility of branching into other specialties as well, with music being one option. The company also has other means to make money, including advertising, which it certainly plans to pursue after it has its retail business at the desired level.

FINANCIALS

Sales growth has beaten expectations, while profits should come in time

Historical numbers are hard to come by, as they don't exist in any meaningful sample size for Amazon. The best we can do is look two years back, where we find sales in 1996 of $15.8 million ($8.4 million of which came in the December quarter). Sales so far for 1997, according to our Foolish snapshot, are a robust $43.9 million -- and that's in just the first six months alone. (Results from the September quarter are scheduled to be reported on or about October 20th.) In fact, let's just list out sequential quarter-over-quarter revenue growth, to get some sense as to why The Motley Fool is interested in this company:

Sept. 1996:   $4.2 million
Dec. 1996:    $8.4 million
Mar. 1997:  $16.0 million
Jun. 1997:   $27.9 million

Of course, Fools don't just look at sales numbers. We've always espoused the importance of profits and margins. However, we're dealing here with a company whose founder stated three years ago (and quite intelligently, we might add) that shareholders shouldn't expect profits for five years. "We're not focused on trying to make the company profitable," Bezos stated in the Upside interview. "If we're profitable anytime in the short term it'll just be an accident." The company is instead focused on maximizing its customers, its repeat purchases, and the reach of its brand name. We're not going to sit around expecting profits this year or next, because we're looking 5-10 years ahead, not a few quarters.

It's still worth noting that in its most recent quarter, Amazon.com lost $6.7 million on its $28 million of sales. If the company were to do that quarter after quarter, it'd eat through its $56 million in cash on its balance sheet in little over two years. However, expenses as a percentage of sales are expected to decrease as sales increase, both as a result of economies of scale and of the company paring back discretionary expenses as the business matures.

Amazon is actually ahead of its own sales projections, putting revenues of $150 million for the year not out of the question. Foolish minds would then hope for $300 million next year, on the way to the company hitting its goal of $1 billion in annual sales at the turn of the century. At some point along this quick road of growth it's expected that the company will turn profitable. There, good Fool, is much of the risk involved -- expected to turn profitable. And even if the company does turn profitable, the stock isn't exactly cheap, depending on what you compare it to. This investment is only suited for Fools with a diversified portfolio, hopefully grounded in the Foolish Four or some similar strategy. Let's look more closely...

valuation...

The Motley Fool's message board on Amazon.com has a few people whose posts consistently cry that this stock is FAR overvalued. From our point of view, these posts have yet to give concrete reasons why that might be so, other than the authors' admittance of being short the stock. This rather reminds us of similar cries regarding America Online, Iomega, and Yahoo! ever since those stocks entered the public spotlight. What unites those three is their continuing status as market leaders.

Other posts on our Amazon.com message folder make Foolish arguments FOR this stock, and in places we found that opinion mirrored our own. Of the well-known Internet-related stocks, Amazon has grown sales most impressively. It bears repeating that in the last four quarters sales have increased from $4 million, to $8 million, to $16 million, and in the latest quarter to $28 million. Trailing twelve-month sales total $56.5 million. The company raised $50 million in its Initial Public Offering (IPO) completed in May of 1997, and management has been using the money for expansion and marketing. Around the Washington D.C. metropolitan area, we've heard several Amazon.com radio ads over the past weeks. As of June 30th, Amazon.com had $56 million in cash and zero long-term debt.

Being alone in what it does (as the only exclusively online bookseller), and in a new industry niche, Amazon obviously doesn't lend itself to traditional valuations. The company can't anticipate earnings for the next few years, and the scant three analysts on the stock expect losses of $1.37 and $1.28 for the next two years. Those are guesses though, and we bet that estimates will surely change one way or another. What's more important from our point of view right now is the company's sales growth, and its gross and eventual operating margins. Revenue has grown faster than anticipated, and gross margins have been around 20%, and should eventually mature around or above that level. As sales volume increases so should the company's position with suppliers, and costs should decline.

Amazon is currently spending 10% of sales on "product development" -- which includes Web site content and hardware (the company aims to buy only the best technology). As sales mature, though, this expense should drop to 3% to 4% of sales. Also, in the latest quarter the company spent $7.7 million, or 28% of sales, on marketing and sales expenses. This expense is expected to decline to between 11% and 14% of sales as the business matures.

While it's difficult to estimate what the company's eventual operating and net margins might be, the potential for substantial profit rests with sales volume. Having penned agreements with all of the major Internet search engines and with AOL, Amazon is having no problem increasing sales volume. That will happen as the Internet grows, too. To what degree the company will be profitable is our main concern, but one that can't realistically be answered. As stated, the company has a goal of achieving one billion in sales around the turn of the century. What sort of profit will be attached to the bottom line of those sales is not for us to guess. We invested in America Online and Iomega when both companies were losing money. We invested on a belief in the business models and the future potential for earnings -- using an "if you build it, they will come" mentality, and intelligent faith. We can see that people certainly are coming to Amazon.com and that profits should result in a matter of time. Our best two investments to date were bought when both companies were not profitable, but when both possessed -- in our mind -- tremendous potential. The same holds true for Amazon.com.

the price-to-sales ratio...

When valuing companies that are yet to be profitable, one often looks to sales growth, and one popular valuation measure is the price-to-sales ratio. Internet stocks have especially been granted rich valuations compared to sales, in part because the perceived growth opportunity is so vast and difficult to measure. Internet search engines like Yahoo! and Excite make most of their money on advertising revenue (and as we'll mention later, Amazon.com should be selling ad space as well, before long), but online commerce itself, we feel, has been underestimated. Online commerce has been a blazing success for companies selling expensive equipment, such as Cisco Systems and Dell, and it has also been successful for companies selling less expensive items, such as The Fool and its FoolMart. (We're just pulling out all the stops at Fool HQ in the name of self-promotion! What, you starting to figure out we need money in order to buy wood for the coming winter?) What are we getting to, though?

Amazon has shown the ability to grow revenues faster and in greater volumes than the leading search engines in just four short quarters. While search engines swap ad banners and ring up revenue, Amazon.com is moving actual product. Gross margins of course are not near the levels that advertising revenues allow, but sales volume itself is impressive. Add to that the lack of competitors (all the online sites are fighting for advertiser dollars, but only two large sites are selling books) and the increased marketing by Amazon, alongside the several new strategic agreements, and we believe (call us geniuses, we know this is a tough call) that sales will continue to grow impressively. Growth estimates for Internet commerce as a whole vary across the board, but all estimates call for sales in the multi-billions of dollars early in the next century.

For lack of better examples (though we believe this is a good example), let's see how Amazon stacks up against other Internet stocks growing at similar -- but slower -- rates, looking on a price-to-sales basis.

As of September 8, 1997:

Internet-related 
companies       Trailing   Market   Price/
                Revenue    Cap      Sales
Lycos ($33)      $17.3mm   $452mm    26
Excite ($25)     $27.5mm   $420mm    15.3
Yahoo! ($48)     $37.1mm  $2054mm    55.3

Amazon.com ($36) $56.5mm   $856mm    15.1

Amazon.com has the best revenue growth and least expensive price-to-sales ratio of the group. Of course, the valuations granted are partially the result of the perceived margins that each company will accomplish when they are profitable, but even so, we feel that much of the lower valuation at Amazon has to do with the surprise sales growth the company has experienced. Amazon has grown sales over 3,000% since the last fiscal year, and 600% in the last four quarters. But comparing the stock to three other "richly" valued stocks and then calling it the least rich of the four is far from a Foolish way to surmise a stock's potential. Look at Amazon.com by itself:

The company has an $856 million market cap. The week before, when we first began to write this report, it had a $678 million market cap. The market has given it almost another $200 million in value over the past week. Is the market crazy?

Well, if management can reach its stated goal of $1 billion in revenue around the year 2000, and if the stock trades at 1.7 times sales by then, we'd be looking at a double in stock price -- a double in little over a couple of years. If sales continue to surprise and the stock continues to trade on a revenue-driven basis, it could double sooner. Even though most traditional book retailers rarely sell at more than one times sales, those are mature businesses with very thin margins. The growth rate and possible margins at Amazon make it different from the traditional retailer (though there is risk involved in that statement, and we're aware of that risk). The company's ability to increase revenue through advertising as well, and to add new lines of business without having to build new retail locations... well, simply, the Internet makes the financial model and the expenses involved much different from that of a "concrete and wood" built operation. If Amazon.com can capitalize on the brand name that it is already building, build a strong repeat-purchase community, and run a profitable operation into the next century, then... well... let's save that for the next section.

THE FUTURE

The virtual community... a new business model

To be able to invest in Amazon or any Internet company with little to no existing profits, you must make an effort to picture the future. Fortunately, we find this easier than usual as we're in this particular business ourselves. But even completely apart from our own experience, projections about the Internet do seem rather easier to make than many other emerging businesses. Contrast this with biotechnology, for instance, where you're not even sure if your company will discover a cure, let alone turn such a discovery into a cost-effective product that has sufficient marketing and distribution to create a dynamic business. With a company like Amazon, you can see quite obviously from the trailing sales growth that it's a much more likely bet to succeed. But because the marketplace will always search for the right price somewhere between the techno-affectionate bulls and the techno-averse bears, that leaves AMZN investors much room to make (or lose) money.

In the recently published Net Gain, scribed by McKinsey consultants John Hagel and Arthur Armstrong, Amazon.com is one of a handful of businesses credited with a new, emerging business model: that of the "virtual community." These are companies that are bringing people of like interests together via the online medium, creating unusually strong ties business-to-customer and customer-to-customer. The upshot is strong repeat business, loyalty, and brand-building at speeds previously unheard of, all thanks to the communications ability of the Internet.

Amazon is about more than just books, you see. It's about people at least as much -- the "right" people, the people with whom you probably share more in common (reading the same books) than most of the people you encounter in your "unvirtual community" of the day-to-day world. When you visit Amazon, you de facto benefit from your encounters with the other people who use the site. Take the example of customer book reviews. You can click on any book at Amazon and find out what others who've already read it thought. From their reviews, you can gauge their own sophistication (or lack of it) and their suitability to your own tastes; by skimming over all the reviews, you'll be taking the pulse of the community and informing yourself before you buy in a more powerful way than ever before.

The dynamic is very much the same here in Fooldom, as The Motley Fool message boards offer tremendous value through Fool-to-Fool interaction, creating what could almost be called "stock reviews." It's always nice to know what "THEY" (the proverbial "they") are saying about your stocks, particularly when "they" includes people who are extremely knowledgeable or adept at analyzing or discussing a given company's business. That same experience of browsing and shopping exists at Amazon. To understand this and foresee where it might go, one only need use a little imagination, mixing in a dollop of common sense.

For instance, what tools might Amazon build into its site to exploit the value of its "virtual community" and build its business? Here's one example, and this one isn't even from the future -- it's already happening at Amazon.com. For every single book purchased in its store, Amazon shows you the three most popular other books obtained by the purchasing community at large. This provides a great "communal mindshare" method of locating books you may never have known about but will probably enjoy. We can attest to this personally, as we've purchased (and enjoyed!) additional books from Amazon we'd never otherwise have heard of. (So many darn books out there....)

More to the point, what additional revenue streams might Amazon's "virtual community" offer it in future, that it doesn't currently enjoy? Well, what about advertising? When you bring together enough people who share the same interest or trait, you not only can offer them the very books they most want... you can also advertise in a highly targeted way. In fact, take the words of founder Bezos himself, in a recent print interview from Upside magazine: "Maybe one of the things that we can do is when you come in and if you search for books on kayaks, we'll show you the list of 225 books we have on kayaks, but we'll also show you an advertisement for a company that sells kayaks. And you can click on that and go to their Web site and buy a kayak." Amazon ends up selling not just books to its virtual community -- it ends up selling advertising and ergo additional products (other people's products). Other people's products, yes, but what's to say that Amazon couldn't eventually take a cut of its hypothetical kayak dealer's sales, as well, given enough volume?

An investment in Amazon or a company like it necessitates just this sort of imaginative projection, informed by a good old-fashioned Foolish common sense.

You see why we think Amazon.com is going to be huge?

FOOLISH EIGHT CHECKLIST

Running Amazon through the Foolish paces -- they serve to protect, but not to be the overbearing law

Derived from The Motley Fool Investment Guide, this eight point checklist that we run on small-caps is for guidance only. Few stocks meet all eight requirements, but the list is a fine way to get to know your companies better as you consider buying them -- to see how they stack up. Let's cut the chatter and run Amazon.com through the paces.

1. Company Sales: $200 million or less. With $58 million in trailing sales, Amazon is well below this limit. We like a small-cap with lower sales because sales growth can -- at least theoretically -- improve more quickly percentage-wise.

2. Daily Dollar Volume: Around $3 million. Amazon.com has a daily dollar volume just northward of $5 million, which is very good. It isn't so thinly traded that we could never sell the thing, or that we couldn't buy it at the price we wanted -- and it also isn't overblown. The entire throngs of Wall Street are not following and trading this stock. It's perhaps underfollowed because many people feel that it's overpriced. We like that. Heck, only three analysts follow the stock. That's good. If the business succeeds, many more analysts will come along and many more firms will be buying, long after us.

3. Low Share Price: Between $5 and $20. We're not sticklers about this point. The stock was $28 last week. The morning of this report it was $30. It closed today at $36. (Dag nabbit.) Again, this point means the least to us. We like stocks below $20 as each move represents a larger percentage gain (or loss!) but it sure doesn't mean much in the long run. Much more important is the valuation of the business, not the mere stock price.

4. Net profit margin: 10 percent or more. As with America Online and Iomega when we purchased the stocks, there is no net profit margin at Amazon.com. The company will hopefully become profitable while we own it, and we hope that it will have net margins in the Iomega range (6%) or better, but we can't pretend to guess. This is a new world, good Fools. We are buying the business model. At the same time, we'll certainly admit that we would love to see these numbers up in the double-digits. That they won't get there for a while is a strike against Amazon, but not a strikeout.

5. Relative Strength: 90 or higher. The relative strength is not very meaningful as the stock just came public in May. The relative strength is above 80, though, outpacing 80% of all stocks since it came public, even in a strong market. After this day's 20% move upward in price, from $30 to $36, the relative strength has probably increased significantly. We wish that the stock could have waited for us, but... sigh... that's what a strong market is doing to some of these things. Hey, at least the relative strength just improved further!

6. Earnings and Sales Growth: 25 percent or greater. We already discussed Amazon.com's 3000% initial sales growth, followed by another 600% in sales growth over the past four quarters. Earnings: not there yet. If Amazon.com does become profitable, most likely the earnings will grow much more than 25% per year. We'll cross that emerald bridge when we get there.

7. Insider Holdings: At least 15 percent. No problem here. Insider holdings are well beyond 15%, at 63.5%. Yup, insiders own nearly 2/3rds of the company, even after the 3,000,000 share initial public offering in May. This is great. Obviously the company's management has a large interest in the business's performance.

8. Cash Flow from Operations: A positive number.Again here, as with Iomega when we bought it, we're hoping for positive cash flow down the road. That's the whole premise upon which the investment is based, when you get right down to it. But if we waited for the positive cash flow before buying, and it came in two years, we'd probably miss out on much of the stock's gain.Here's where our belief in the business model helps us make our decision once again. That said, we're taking greater than usual risk, here.

THE RISKS

A new frontier, fellow Fools...

The stock is extremely volatile. Following the inevitable hype surrounding its May 15th initial public offering, as reported by Foolwire, the stock had been priced at $18 but opened at $29 1/4... within a couple of weeks, AMZN would touch its 1997 low of $15 3/4. A month and a half later (mid-July), Amazon.com had shot back over $30 to a new high before surrendering more value back to $23 in August. As for September, we just saw a new all-time high ($32) established last week. Then today, the stock (extremely disappointingly, from our point of view) skyrockets up $6 on heavy volume, as it appears some institutional holder is buying in. We're not dissuaded, as we're investing for the long term.

Anyway, suffice it to say that these shares bounce about like a jet ski over whitecaps.

A second thing to watch out for: Apart from the volatility, it's very hard to come up with good and reliable valuations with a company like this one. With Yahoo! now valued at $2 billion, for instance... well, how do you value Yahoo!?! Great question. Despite trading at 56 times sales, perhaps the company is STILL undervalued (recent market action would suggest that). If this is true, we certainly feel comfortable paying 15 times sales for Amazon.

Do you feel comfortable paying 15 times sales for anything?

These are the sorts of questions every investor must ask himself as he builds his own investment portfolio. (As always, the Fool Portfolio represents our decisions for our own money -- nobody else's.) Amazon could lose half of its value overnight. In a bad market, it could drop 80%. It could also double in short order. Especially in situations in which valuation is difficult, you expose yourself to additional risks as an investor.

OK, we've talked about a volatility high enough to scare some investors off. And we've talked about the lack of standard valuation models, which could put these shares down on the canvas for an eight-count if the business changes or becomes threatened. What else might one watch out for?

Related to the first two, the "float" on Amazon.com (8 million shares) is not large. Likewise, average daily trading volume of 150,000 shares is also not high. Earlier, we mentioned that daily dollar volume was over $5 million. While this is certainly above the minimum we consider, it's not large in the greater Wall Street context. We view that as a plus as much as a minus. For those who wish to avoid less liquid and volatile small caps, however, this will be a minus.

Finally, the specter of competition is an obvious one. We believe Amazon.com has a significant leg up on its Internet competitors, but it's competing with some great companies, and may compete with more and more great companies in the future. Again, we believe the book retail industry is a huge one, and it's estimated to be growing over 20% annually, so it should be fully capable of creating success for Amazon and its big competitors. However, if the industry stopped growing and it all became a zero-sum game, Amazon could lose out if it's undercapitalized relative to the competition.

CONCLUSION

As we look over Amazon and the community and business that it's building, we encounter a company that is a spiritual cousin to our own. Amazon, in fact, is one of the closer "plays" to The Motley Fool that we can find in today's market! AMZN is creating a virtual community company doing great shakes by focusing itself on one part of the retail industry. This of course doesn't mean that it will be a successful investment... it's just a Foolish reflection as we close this report.

The popularity of our online following combined with the thinner float in these shares could cause this stock to jump tomorrow morning, so we may or may not purchase it Tuesday. Following a new high set last Friday, the stock was up a sickening $6 per share today on no news... given this (especially given this), it's hard to know what tomorrow holds. We will of course be purchasing the stock at some point in the next five days, as is our covenant. Whether any other Fool should buy into the teeth of this rocket ride is of course up to each individual. You must know your risk tolerance, and you must know how this (or any) investment fits into your portfolio.

When we find something we like, we generally don't worry too much about "timing" the market. We buy, and we hold. Fool on!