Matthew Yglesias for Slate:
In any line of business where you’re earning healthy profits you always need to worry that a competitor will undercut you on price. But normally you can also have some confidence that they’ll be restrained in their price cutting by the need to maintain profits of their own. Amazon is totally off the leash in this regard. Wall Street treats it like a brand new startup that just needs to think about growth and can find a viable business model later. Which means that if they come after you, you have no recourse. Your profits are going to shrink, and your investors are going to punish you for it but Amazon’s profits don’t necessarily need to grow proportionally. They just need to show they can poach your market share.
Just take one look at his PE Ratio chart comparing Amazon to Apple and Walmart. Amazon takes a dive into the red, losing $274 million last quarter, and Wall Street seems to love them even more. Apple earned $8.2 billion in pure profit in the same span, and Wall Street has been freaking out.