AMZN is the premier international online retailer. The company serves consumers through its retail websites and focuses on selection, price, and convenience. LNKD, on the other hand, is the most popular professional networking website. LNKD offers a variety of professional services for career advanement. Both companies embrace technology in order to drive growth.
LNKD and AMZN both spend a lot of their cash on reinvestment. For example, just under 60% of LNKD revenue was spent on sales/marketing and product development. This kind of investment positions the two firms to benefit in the long run.
The LNKD situation is, interestingly enough, very similar to AMZN. AMZN spends a large portion of its cash on improving its distribution centers and preparing itself to have economies of scale for the future. These two stocks have rich PE multiples and both trade in a similar fashion. This thesis can be tested. The 55-day (a Fibonacci number) price correlation between the two stocks is 0.88. This coefficient is very strong. A reading of 1.00 represents a perfect positive correlation and readings above 0.75 are generally considered strong. This figure simply quantifies the severity of relationship (positive or negative). Therefore AMZN will be a stock to watch for LNKD investors.
Spending for the long-run seems fine, however renowned economist John Maynard Keynes one said, “We are all dead in the long run.” They may be planning for the long run, but if these two companies continue to put up underwhelming EPS the market may eventually discount their massive forward and trailing PE multiple.