As the failure of Amazon.com, Inc. (NASDAQ:AMZN) to do what is demanded of most corporations – deliver profits – was revealed again at its most recent earnings announcement, Wall Street took the stock to the wood shed, wiping out over $15 billion in value as the stock dropped 10 percent in the wake.  But a new report from BGC says investors who are short the stock are missing the point.

Amazon

“While the market is clearly reacting negatively to the current investment cycle, we are incrementally more positive on the direction of the company as the platform opportunity materializes,” wrote BGC’s technology analyst Colin Gillis.

Amazon stock missing the big picture

Gillis, reverberating the line of thought among Amazon.com bulls, said those questioning the stock are missing the big picture. “The question we see that investors need to ask themselves is: what is the value of the company given the scale of the opportunity Amazon is pursuing?”

Gillis makes the argument that, compared to established competition and where Amazon is headed, the current valuation makes sense. “The current investment cycle layers in increased technology and content costs as Amazon.com, Inc. (NASDAQ:AMZN) seeks to build itself into a complete consumption, payment and advertising platform for physical and digital goods,” he writes.

Amazon stock performace

Amazon’s market capitalization

Amazon is the 28th largest company by market capitalization on a US listed exchange with a value of $147 billion as of Gillis writing his report, where he maintained a hold rating on the stock. The largest retailer is valued, Gillis noted, has a $246 billion market cap, 67 percent more than Amazon.

So if Amazon.com, Inc. (NASDAQ:AMZN) wants to be a retailer when it grows up and starts actually generating profits, Gillis argues, they might be fairly valued. The report does not mention that if Amazon is required to raise prices to generate profit it might not lose popularity, however.

But if Amazon turns out to be a technology platform company, Gillis notes the third largest tech firm in terms of stock market capitalization is valued at $403 billion, while the fifth largest technology company has a market cap of $581 billion.

short interest

Risk to Amazon’s forward success

“While there are certainly risks to Amazon’s forward success, and the company has not shown an ability to be meaningfully profitable, Amazon has shown an ability to robustly attract consumers into its ecosystem,” Gillis writes.

Yes, Amazon.com, Inc. (NASDAQ:AMZN) can certainly attract customers when it is not required to make a profit off those transactions. When the company is required to generate a profit, the big question is will that profit be razor thin – enough to justify such lofty valuations. Or, will raising prices cost the company market share.

These are the questions to be considered for a company being valued based on what it could become.