NEW YORK ( TheStreet) -- Amazon ( AMZN) changed the way businesses market products and the way people buy products. Amazon's shadow casts long and wide on contemporary retail marketing. AMZN data by YCharts
The argument defending Amazon's micro-margins typically sounds a lot like this, "Amazon is delaying the big pay day in order to increase its market share." The argument simply doesn't hold water. Those that have spent time in retail know that it's easy to move a lot of volume when your prices are low. It's a whole different ball game to make money in retail. AMZN Revenue Growth data by YCharts
The most probable outcome when Amazon attempts to raise prices in order to increase margins is a loss in growth. In order to bring it's P/E multiple to a "reasonable" retailing level of 35, Amazon needs to triple its net margin. Pendola suggests locking customers into the Amazon ecosystem is a valid substitute for profits. Unfortunately, the Internet has, for better or worse, provided everyone with a key to the locks that bind us to paying a higher price. Even if Amazon doesn't raise prices for fear of losing growth, each increased dollar of revenue becomes more difficult to take away from other merchants. Either direction, Amazon's growth story doesn't make sense at $220, and probably doesn't make sense even at $110. Can Amazon move higher from here? Yes, but that isn't the point of investing. We don't make money guessing the future prices of stock; we make money as a result of predicting the odds correctly. We know Amazon competes in a space that is increasingly competitive and is reliant on commodity-type items for much of its revenue. The ability to shop for the best price is a click away.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage. At the time of publication the author held no positions in any of the stocks mentioned.