Pandora, Amazon: Sister Success Stories

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- People tell me I am crazy all of the time. They chide me for being a Toronto Maple Leafs fan. They do not understand how I can eat sardines straight out of the tin. More than a few folks brand me insane for being long Pandora ( P) and bullish Amazon.com ( AMZN). In a couple of articles that hit TheStreet this week, I outlined my long-term bull case for both stocks. In one of the articles, I scratched the surface on similarities between Pandora and Amazon:

Big spending now sacrifices the bottom line in the near term at both companies, while keeping focus on massive long-term opportunity.

Both companies can dominate multiple spaces years from now, but only if they make the investment today.

Pandora not only invests in content, but it is spending aggressively to assemble a sales team that can ramp up revenue by meeting demand for targeted, multiplatform advertising.

Amazon.com spends money on content and fulfillment and reportedly takes a loss on Kindle Fire with tunnel vision towards becoming an even more pervasive force in various aspects of consumers' lives.

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Both companies have been around for some time. Pandora since 2000; Amazon.com since 1994 (the company went online in 1995). Of course, Amazon has been a public company much longer. It went public in 1997, while Pandora only IPO'd last year. Despite their relative old age, both companies have seen their business models shift with the times and their founders' visions of the future. In the spirit of a Jobsian Apple ( AAPL), you can accurately call Pandora and Amazon "perpetual startups."

Companies with this mindset go through periods of investment and reinvestment that often drag on the near-term bottom line. It's all about assuming the proper strategic-competitive position for the future.

A look at the AMZN and P charts, courtesy of Yahoo! Finance, followed by a quick dip into the archives proves instructive.

AMZN

P

While not carbon copies, similarities certainly exist between the two charts. With AMZN gyrating wildly back in 1999 -- like P does today, but at a lower price per share -- Bloomberg Businessweek conducted a Q&A with Amazon CEO Jeff Bezos. This exchange looks a lot like the ones Pandora executives have with reporters on a daily basis:
Q: Do you have a goal for when you can throttle back on expenses and become profitable?
Our strategy is very, very clear: We're focused on long-term returns for investors. And to throttle back on investment now would be shortsighted. When we have less opportunity, that will probably happen. But as long as we have lots of opportunity, we're going to continue to invest commensurate with that opportunity in a very disciplined and methodical way, but in a long-term context. To do anything else, we believe, is irrational.
But we also don't claim that that's the right strategy. We just claim it's ours. And then people get to decide. But we're clear about it. And we do passionately believe it's the right strategy.
Make no mistake about anything I've said here: Long-term profitability and building an important and lasting and sustained company is incredibly important to us. We just believe that, by investing now, we increase our chances of achieving those things.

And, of course, two years later reporters across the land, including one from Fortune, asked the same question bears ask today about Pandora: Can Amazon Be Saved?

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A decade later, you can barely turn around without some blogger, reporter or doom-and-gloom author asking you if you "learned anything" from the dot-com bust of 2000, affectionately known as Bubble 1.0. I learned quite a bit actually.

Howard Lindzon expertly summarizes much of what I learned when labeled all of the bubble talk "entrepreneur envy":
The Internet of 1999 was a mania. What we are seeing today in web/tech is a phenomenon ...
Most importantly for the upside of the market, no one owns stocks. There are millions of traders flipping stock with institutions in high growth names, but there are no rational conversations about the growth opportunities.
All the while, entrepreneurs are chasing dreams with little bits of angel and venture money. Companies with massive opportunity and now loads of cash are going public and dominating their verticals or mindshare. That's not a bubble.

I learned not to second-guess entrepreneurs. People like Steve Jobs, Jeff Bezos and Pandora co-founder Tim Westergren. These guys get it and they get it done. They don't have time for pesky shareholder complaints and inane discussion calling into question approaches to profitability, reinvestment spending and what to do with their company's cash. The second these innovators take their eye off of properly positioning their companies for the futures they themselves sketch, they lose, shareholders lose and we all lose.

He's seems like a nice guy so I hate to say it, but Apple's downfall will come courtesy of Tim Cook. With Jobs gone, Cook has already made a mockery of his legacy. First, a dividend and a buyback. And now rumors of something Jobs detested -- a mini iPad.

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Next, Cook will travel off to China and smile for the cameras like a politician. Wait. He already did that. In many ways, he is the anti-Steve Jobs. And, while it might look like that's good for business, it's not. It's very bad for business.

When Jeff Bezos tells you he's going to spend billions of dollars on his company's business, don't second guess him. He's been saying it for years. Look where AMZN is 10,951.35% later.

When Westergren or Pandora CEO Joe Kennedy tells you that they have never set a timetable for profitability, don't laugh. These guys recognize that it takes capital and, more importantly, time to build a sustainable brand and execute a profitable business model. The greatest companies never break that cycle of investing "commensurate" with the long-term opportunity they have their sights on.

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The bears and purveyors of Bubble 2.0 mass hysteria will never understand the idea of the perpetual startup. They'll never be able to look inside the minds of great entrepreneurs and understand, even a little bit, what's going on up there. As a result, they'll likely miss the boat on the Amazon.com "Bubble 2.0" produces.

At the time of publication, the author was long P.

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