After their results today – and the stock soaring – especially with emphasis on Kindle – is Amazon the new Apple?

1. Problem is the immense capital spending may result in future returns, but it hasn’t in the past led to strong free cash flow or strong net profit margins.

2. Even if they get future cash flow growth of 25% pa as a result of the investments over the past two years – the stock is still overvalued on a discount cash flow basis. Ie the market is factoring far more revenue growth than the company has ever delivered off the back of its capital spending. So unless they’ve suddenly become better at getting more returns on investment – then no – not the next Apple. It suggests that whilst they can generate free cash flow from their investments, given the capital expenditure they incur – which appears not investment, but working capital, that the ROI from invested capital in the future will not suddenly improve. Ie they wont suddenly become better at converting more profit from capital.