Amazon (AMZN) reported extremely strong earnings last week aided by improving margins. I believe that Amazon has one of the widest moats of any business, as infrastructure investments over the last 15 years, have built a distribution model that cannot be emulated. Amazon is one of the all time category killers impacting retailers of all shapes and sizes. It is only fair that they should be paying a sales tax which has given them an unfair advantage, and I think that this could provide some short term headwinds as more states jump on that bandwagon.
The Kindle has been a really interesting development when combined with their cloud computing segment, as it along with the sales of items on the kindle, enable the company to have the potential for substantial margin expansion. Amazon must retain a firm and resolute focus on being the low cost leader so any real margin expansion from raising prices could potentially damage the business. The best competitor to Amazon is Wal-Mart, but Amazon doesn’t have the large retail footprint which gives them the advantage on costs even versus the former low cost leader. Amazon is priced to perfection so while I love the business I don’t see an adequate margin of safety at current levels.