First, analyzing a company's competitive position doesn't answer questions about its financial quality or its market valuation. Both issues need to be addressed (although only at later stages in a Rule Breaker's young life) before an investment assumption should be made.
Starting with financial quality, after its December quarter, management stated that Amazon's financial performance would start to improve. Spending will decrease, losses will lessen, and the company will finally begin to climb upward in its financial performance. We should get our first meaningful glance of this on July 26, when Amazon releases second quarter results. Lehman Bros. didn't care to wait, though, when it said this morning that from a bond perspective (Amazon has debt from bonds), it finds Amazon's credit "weak and deteriorating." This and predictions of flat revenue this summer put the stock near a two-year low.
Of course, the larger question on everyone's mind is, "When and how will Amazon be profitable?" On the discussion boards, people asked me to create a model that showed how Amazon could become profitable. Anyone could do that, but the question is why? When you build a model to show a presupposed outcome, of course the outcome of the model will be what you set out to demonstrate (and manipulate) it to be.
So, logically, anyone can create a table of numbers to show how Amazon could be profitable. But so what? Until the company accomplishes profitability itself, investing in the stock must be, as David G. wrote, and as Fools on the boards enjoy quoting, "an act of faith." This is true of any young Rule Breaker that lacks a profit; and this is why Rule Breaker investing isn't for many, or even most, people.
Faith aside, after the company reports its results on July 26, we'll take a long, ongoing, very close look at Amazon's latest results and its financial direction, because now the company is beginning to enter a stage where doing so will actually mean something. Amazon is steadily moving towards the "show me the money" stage, and away from the "spend and invest like mad" stage. (Here are all past financials.)
Yes, our young company is growing up. And as of today, isn't it painful!? (Someone wrote me this morning asking, "How do feel now? Amazon is down 25% since you wrote positively on it just four days ago." I responded that if I were writing short-term predictions, I'd have a reaction. Ask me how I feel much later.) Where will Amazon be five years from now? Bankrupt? Or a leading retailer?
Sequencing the Genome of Something or Other
What does it mean on Monday when we (meaning our race) announce that we've sequenced the human genome? First, remember that words are only conventions that we use to label things. For example, we don't really know what we are. We call ourselves "Human Beings," but what we really are is this: (Look in the mirror). And we don't know what that is, despite the fact that we invented a name for it.
Similarly, laws of nature don't exist in a way that society tends to believe. We seem to forget that we ascribed those laws to nature. "Laws" of nature were not discovered; they were invented. We named them like a matrix to fit over nature and define it for us because we're a creature determined to define, classify and segment everything so that we can "understand it" (or so we can believe we understand it). The world itself doesn't truly have any segmentation to it at all (we force that condition on it) -- so when you understand the world only through our dissection and labeling of its so-called parts, someone could argue that you don't truly understand it at all.
The news that we've sequenced the human genome essentially means that we've separated and put into order the genes that have long existed in the body. Once again, we've taken nature and we've broken it into its smallest parts -- meaning we separate it into pieces that we can clumsily tag, segment and classify. Whether or not this proves to be a good thing in the long run, you and I may never know.
Manipulating genes, like manipulating atoms, will bring danger to the world as well as good. That's to be expected, because you can never have good without its opposite, bad -- they arise mutually (and the meaning of one loses all meaning without its opposite to compare to). As horrible as disease is, it aids in keeping a population sustainable. If you learn to conquer disease, in the long run you may set the stage to conquer yourself.
Of course, we're optimistic that the good will far overshadow the bad. To that end, today's news from Human Genome Sciences (Nasdaq: HGSI) is an exciting demonstration of the power and speed of genomic discovery. In the spirit of investing in hope and promise, on Monday night the Rule Breaker will host a chat about biotechnology so we can discuss Celera (NYSE: CRA), genome sequencing, biotech's many leaders, and how to consider investing in them. We hope you'll join us!
Your Turn:
Where will Amazon be in five years? Vote in our poll.
Related Links:
- A Biotech Investing Checklist
- Rule Breaker on Amazon's Bonds
- Fool News & Commentary on Amazon's Decline Today
- Fool Research, which covers Amazon, eBay, AOL, Amgen, and other Breakers
- AOL and Time Warner owners approve merger
