Amazon (AMZN): Another Act To Justify Its Share Price

Print Email

With its stock up 70% over the last three months to a seven-year high, the rabbits need to keep coming out of Amazon’s (AMZN) hat.

Recently the company announced its new movie download service, the Unbox. The market applauded the drop in technology and marketing costs in the last quarter.

But, the Jeff Bezos magic act is not over. The company’s digital computing and storage outsourcing business, launched about a year ago, is showing signs of real success. According to The Wall Street Journal:  "These services have been embraced by scores of Internet start-ups, who have jumped at the chance to put a high-end network at the core of their operations at rock-bottom prices."

The program is actually a work of genius. After spending billions of dollars to build a huge e-commerce and storage platform for its core businesses. Amazon is rented out its unused capacity, a business that must have stupendous margins.

While the business may help internet companies that cannot build their own infrastructure, it is another example of why Wall St. has come to once again love the company. Every time it appears that Amazon is trapped in a low margin, slow growth business like selling books and CDs, it come up with another act in what appears to be an endless play.

Innovation upon innovation, Amazon confounds its critics.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.