Tech companies are incredibly adaptable, constantly learning, changing. As an individual investor, it’s important to learn how to learn about companies because the news is fear-driven, a‑b tested nonsense. I find that listening to a company’s CEO is a great way to learn what’s happening. They will often tell us exactly what they’re doing as clear as day.
Amazon just did.
Technology companies often hard to measure. Apple’s stock price, for example, has always been priced like a hit-driven business and the assumption priced into the stock is that they’re one bad product away from destruction:
The result is that the valuation of a consumer electronics vendor is based on the momentum of individual products. Apple has always been valued this way. Each hit product is considered to be a stroke of luck/genius and the chances of recurring are discounted to about zero. Regardless of the fact that it has a track record of “home runs”, Apple’s hit rate is not considered sustainable. Certainly Apple is not valued as being able to generate reliably recurring revenues.Horace Dediu, Asymco
What’s amazing though is how these companies take something small, iterate incrementally over-and ‑over, until they have a billion dollar business.
Jeff Bezos, Amazon’s CEO, put out a shareholder letter (PDF) the other day that’s worth reading. Something at the bottom of the first page caught my attention…
We’ve begun the work of building incremental testing capacity. A team of Amazonians—from research scientists and program managers to procurement specialists and software engineers—moved from their normal day jobs onto a dedicated team to work on this initiative. We have begun assembling the equipment we need to build our first lab and hope to start testing small numbers of our frontline employees soon. We are not sure how far we will get in the relevant timeframe, but we think it’s worth trying, and we stand ready to share anything we learn.Amazon Shareholder Letter
Everyone is going to need testing. Amazon is going to figure out how to do it at scale.
Does this become another business? They (along with Apple, Google, and others) want a part of the healthcare opportunity (read more about their push to Pharma and Healthcare), this seems to me like a great place to start and one that plays to Amazon’s logistics and analytics strengths.
And here they are, telling us what they’ll be doing right on the front page.
While nothing I write should be taken as “investing advice”, should you wish to get started investing and buy a little bit of Amazon, read this step-by-step how-to guide to doing so (just switch Apple to Amazon, but otherwise it’s the same).
Disclosure: Long Amazon