Today in Market History

Amazon went public twenty years ago today. A headline in The New York Times read, Investors Offer Amazon.com A Warm First-Day Reception. Yet despite the warm reception, a 30% day-one pop, few could have seen that it would go onto become one of the greatest stocks of its generation.

It’s incredible to think that just ten years ago, Target, Kohl’s, Best Buy, Sears Holdings, Macy’s, J.C. Penney and Staples were each bigger than Amazon. Now the destroyer of brands is worth six times as much as all of them combined.

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Amazon’s sales grew from $15.7 million in 1996 to $136 billion in 2016, so their top line has compounded at 57% for twenty years, but this didn’t translate to the bottom line; their total earnings since they’ve been a public company are less than $5 billion. Apple and Google each earned more than $5 billion last quarter.

Amazon transformed from a $400 million bookstore into a $450 billion business in a way that had analysts scratching their heads and short sellers running for cover. Below are the lifetime sales and earnings figures since going public; its net margins for the last twenty years is less than one percent (data from YCharts). Amazon has even managed to disrupt fundamental analysis.

amaozon-revenue

The quotes below were taken from the New York Times article in 1997. Naysayers have been saying the same thing since the very beginning.

While Amazon’s IPO is certainly hot, Mr. Dedio said he doesn’t know what will support the company’s stock price.

“When and if we start to see earnings, that to me is concrete. Right now, we have lots of excited people investing in a concept that they can relate to,” he said. “It’s the novelty here — that was the attraction.”

Sticking with Amazon the stock, as I’ve discussed many times before, was more or less impossible. The annualized volatility was 62%! The chart below shows all the 199 down 6% days.

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Letting this winner run was a constant struggle; The bars below show how far Amazon fell from its high every calendar year.

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A week before Amazon’s IPO, another tech stock came public, RMBS Inc. You ever hear of this one? Me either. It’s up just 2% a year for the last twenty years.

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The bit below from the 1997 letter looks brilliant today, but had Amazon not turned into the company that it is, this would have been lost in the archives with all the other letters from companies that claimed to be long-term thinkers. A cocktail of market forces, bad decisions and bad luck prevented the other businesses from getting there.

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We can craft wonderful narratives around why Amazon thrived, and with all the information we have today, it’s easy to fool ourselves into thinking we should have known things would turn out this way. But it’s really hard to look at it this stock or this business and apply many tangible lessons for the future. With over 40 billion shares traded in the last twenty years (477 million outstanding), Amazon changed its customers lives far more than it did its shareholder base, with one obvious exception, Jeff Bezos. The founder still owns 80.9 million shares, or 17% of the company. At a net-worth of $82 billion, Bezos is the richest person in the world. He had the vision. He had the conviction. And he delivered.

Further Reading:

Amazon’s IPO at 20

Looking For the Next Amazon

My Friend is Beating Me

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