Does Washington Post Purchase Mean Amazon Has Topped?

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The world of media convergence gets stranger and stranger by the month. Old media wants to be new media, but now it seems that the billionaires want to control the world of old media. News that Jeff Bezos, founder and chairman of Amazon.com Inc. (NASDAQ: AMZN), is taking over the print news assets from the Washington Post Company (NYSE: WPO) is not just strange. This is a game changer, but we are concerned, with how high Amazon’s stock is valued, that taking over a news print operation of this magnitude could really take Bezos away from focusing on the growth at Amazon.com.

In fact, we think it is fair for investors to ask if Jeff Bezos might be thinking that Amazon.com’s $137 billion market cap and $300 share price may be at a top. We have always admitted that Bezos is angling for a 2016 and beyond race to buy growth and to establish market dominance at any cost.

At this moment we cannot help but wonder if Bezos is marking the pinnacle of Amazon.com’s growth history here. It just seems odd that a billionaire would go out and disrupt almost every facet of the consumer online retail market away from brick-and-mortar stores, only to take six steps back into the oldest form of media around. We have several things to consider here regarding Bezos’s focus and what is happening elsewhere in the world of old media.

Bezos already has been running Amazon at gross margins that are next to zero, and its stock trades at more than 300 times expected 2013 earnings and more than 100 times expected 2014 earnings. The good news here is that Bezos might not care if the Washington Post is no longer wildly profitable.

Bezos has asked CEO and Publisher Katharine Weymouth, President and General Manager Stephen P. Hills, Executive Editor Martin Baron and Fred Hiatt, editor of the editorial page, to continue in their roles. This will keep Bezos from having to run the media empire himself, hopefully.

Warren Buffett has been acquiring newspapers galore for the Berkshire Hathaway Inc. (NYSE: BRK-A) empire. That has not acted as a noticeable distraction for Buffett, and he is up in his eighties and even recently fought prostate cancer. Berkshire has continued to reward shareholders with growth in 2013, and Buffett keeps making large acquisitions when he can find them at the right price. Oddly enough, he used to be on the board of directors of the Washington Post.

One thing is more than just a little bit surprising here. Shares of The New York Times Company (NYSE: NYT) are up only 0.5% at $11.95 on the day. This is also a family-controlled public entity that has been in trouble with declining subscriber metrics. Its stock is not quite back at a post-recession high, and its share price is barely one-fourth from its peak between 2000 and 2005.

Gannett Co. Inc. (NYSE: GCI) was already in TV and newspapers, but it is perhaps best known for the flagship USA Today daily national newspaper. Now Gannett is acquiring Belo Corp. (NYSE: BLC) in a deal worth some $2.2 billion, a deal that supposedly will add to the company’s earnings within the first integrated year of operations. Gannett will own TV distribution in 21 of the top 25 cities in America.

The Washington Post is more dialed into Washington D.C. than many other papers, and Jeff Bezos has been very quiet on most political issues, outside of online sales tax issues. Will this change even if others remain in charge?

After pondering all these issues, unfortunately we have to take a wait-and-see attitude here. Bezos has a solid team at Amazon.com, and he has been able to sell Wall Street on the notion that margins in 2012 and 2013 just do not matter when you are building a trillion-dollar disrupting empire of the future.

Shares of Amazon.com are down only 0.5% at $299.50 so far on Tuesday, against a 52-week range of $218.18 to $313.62. Shares of the Washington Post Company are up almost 5% at $596.00, and the stock hit a post-recession high of $605.18 earlier Tuesday morning.

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