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Amazon’s Drop: Buying Opportunity or Warning Sign?

Investors old enough to recall when Amazon ($AMZN) first appeared on Wall Street 17 years ago will also remember that the company’s business model – freely admitted to, at least at the time, by CEO Jeff Bezos – was selling dollar bills for ninety cents. It sounds ridiculous, but it was really that simple – volume was supposed to make up for investing massive amounts of money into what has proven to be a trailblazing online commerce model. And it has worked to a surprising extent – the company has eradicated the whole brick-and-mortar bookstore thing, and from time to time investors have profited handsomely by buying the company’s stock.

However, today was not one of those times. Even before today’s nosedive, set off by the release of a massive third-quarter loss and a tepid (at best) forecast for the holiday season, Amazon has had a rough year. After rising four-fold between 2010 and the start of this year, the stock is down roughly 30% since January.

Meanwhile, there’s a new online-retailing game in town, Alibaba ($BABA) competing for investor capital and potentially offering exposure to a significantly larger number of consumers. On the other hand, Amazon has redefined the shopping experience, was wide moats around its business, and has embarked on a number of strategic initiatives that should result in strong revenue streams over the next few years.

The bullish case for $AMZN is that investors are impatient, tend to throw babies out with the bathwater, and have overreacted to the Q3 numbers, thus making the decline this year a chance to get a fantastic company on sale. The bearish case is that the third-quarter results – and the company’s expectations, at least for now – indicate a company struggling to stay ahead, thus suggesting $AMZN may go much further south before it stabilizes.

$AMZN is one of the most popular stocks on, ranking 8th in popularity on our users’ watch lists. It’s a poster child for the entire Internet sector. What do you think of today’s action? Is the stock a buy at these levels, or is it headed further down? Make a rating!

Disclosure: At the time of this writing, Vetr had no position in the equities mentioned in this report.