So I went to Amazon.com to check out my book, just to make sure it’s still there, and carelessly typed My Vaswt Fortune. Amazon replied it was unable to find an exact match but that (through the magic of artificial intelligence and truly awesome computing power) it had come up with three “close matches for this search;” namely,
- Don’t Pee on My Leg and Tell Me It’s Raining: America’s Toughest Family Court Judge Speaks Out by Judy Sheindlin and Josh Getlin
- My Year of Meats by Ruth L. Ozeki
- Light My Fire: My Life With the Doors by Ray Manzarek
Okay, they weren’t precisely “My Vast Fortune,” but you’ve got to admit they came pretty darn close.
Which leads me to think that a few things may indeed go wrong on January 1, 2000, as we’ve been discussing — computers are so literal and, in that sense, can seem so stupid! All three titles had the word “My” in them, and they appeared within seconds of my request. And I’ll admit to being intrigued by all three, or at least the first and the third. (The Doors were so cool, and how can you resist a folksy family-court hanging judge?) But come on: How close are these titles really to the one I entered?
Are nearly 100% of the computers and embedded processors in the world really going to do OK when the date appears to be 1900 but any idiot can see that obviously what we meant to say was 2000?
But enough gloom and doom.
Let’s get back to my running obsession with the now $6+ billion Amazon.com.
My first mistake was in analyzing it as a book company. Clearly, it’s got enough of a head start and, by now, brand recognition, to be one of what may ultimately be just a handful of prime retailing Internet portals. You’d arrive, click the category of item you are after — books, movies, software, music, eyewear, consumer electronics, jewelry … and click to add items to your shopping cart. What might have taken half a day before can be done in 15 minutes, with no need to drive through the rain or snow, park, wait at a checkout line … it really will be a brave new world. Ordinarily, you can save time or you can save money. With Internet shopping, we save both. Indeed, America (and the rest of the world) will become more efficient, and with that, more prosperous.
At the same time, $6+ billion doesn’t seem cheap for this stock (50 million shares, plus options, at approximately $125 or $130 each), because the barriers to entry are relatively low, and everyone in the world is going to try to do the same thing.
So I keep coming back to FedEx. You can’t buy shares in UPS or the Postal Service, which will be the other way Amazon and its competitors will deliver all the products you used to carry home with you in a shopping bag. But you can buy shares in FedEx. FedEx has a pretty well-established/well-regarded brand also, and unlike Amazon.com, the barriers to entry in FedEx’s business are very high. First, for example, you need to buy or lease a fleet of aircraft and trucks.
So I’ve been long FedEx even longer than I’ve been short Amazon.com. And while I think I may have blundered with Amazon — certainly I blundered by shorting it too soon, and I may have blundered by shorting it at all — it seems to me in the long run that FedEx is a better buy than Amazon. It sells at around $51 currently, with a book value per share of $26. Amazon sells at more than twice the price and has a book value of 41 cents. FedEx earned $3.37 a share last year; Amazon lost $1.03. FedEx had sales of about $108 per share and so sells at about one-half times sales. Amazon had sales of $6.50 a share and so sells at nearly 20 times sales.
None of this is to suggest I am comparing apples to apples. Amazon is still very much at the start-up phase of its trajectory. But here’s my point. If Amazon and/or its eventual competition are as successful as the market expects them to be, won’t sales of FedEx, UPS and the USPS boom too? And isn’t FedEx the premium brand among those three? So won’t FedEx likely grow nicely along with Internet retailing? Someday, some music and books and software will be delivered electronically, I suppose, which will mean that many fewer packages. But it will be a cold day in July before ski parkas and gourmet pretzels and contact lenses can stream into your home through a fiber optic cable.
So given the choice between FedEx at twice book and 15 times earnings and Amazon at 300 times book and 20 times sales, I opt for FedEx. Given the choice between Amazon, up tenfold from its low of the past year, and FedEx, at its low for the year (down from its high of $84), I would buy FedEx. If someone gave me a chance to buy all of FedEx for $7.5 billion (its approximate current market valuation) or all of Amazon for $6.5 billion, I think I’d call a couple of friends to pull together the extra billion and go for FedEx.
Rising interest rates and fuel prices, if they ever do rise again, will hurt FedEx, as will union demands. And surely Amazon and the others will get FedEx, UPS and USPS bidding fiercely against each other. (Oh, yes — and Airborne.) But won’t margins be at least as thin on the selling side? Indeed, if we are disintermediating middlemen, might FedEx someday offer its own Web site? And allow any FedEx customer — any publisher, any clothing manufacturer, any pretzel maker — to include its offerings online? At which point you might not need Amazon at all. Rather than Amazon’s feeding shipping instructions to FedEx, you’d just order from FedEx in the first place. It would probably be harder for Amazon.com to replicate a global shipping company than for FedEx to start a subsidiary that did what Amazon does.
One thing for sure: However this plays out for investors, it’s likely to play out very nicely indeed for consumers. It already is. Want a movie? Just visit www.reel.com and — bang — there it is. And cheap. Soon, I have no doubt, you’ll be able to do the same thing with Amazon.com.
Quote of the Day
That I'm their competition.~Famed hedge fund manager Michael Steinhardt, when asked the most important thing an investor could learn from him.
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