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Amazon.com: A Glimmer of Hope in Retail Sector
James Stewart: Amazon is thriving in this recession -- a run that should continue.

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Posted 2:38 AM EST February 05, 2009

Posted by: oyeh123

Dear Mr. Stewart,

It's a nice article, and I agree with several of your points. However, my personal experience with eBay has been quite negative--there are just too many fakes on the site, and the quality of the other items are poor. The "Powerseller" ratings are ridiculous since most of these sellers peddle sub-par goods such as crappy cell phone batteries or broken laptop parts.

Amazon may be a little overvalued, but their model works. Ebay is flawed and will be doomed.

Disclosure: no long/short positions on either.

Posted 9:55 AM EST February 04, 2009

Posted by: RKIA

James:
Well done, although I would prefer if you included your email address.
Do you recall when AMZN first announced Prime? It was in 2003. The stock dropped over 10% on the news, as analysts worried about the added expense. The market took a while to realize that Prime was actually a huge benefit to shareholders, as it provided a large moat around this business.
This has long been a very misunderstood company. As the base of Prime members continues to expand, its effect on the bottom line will become more pronounced, and its genius will become more obvious.
This is only one of the programs that AMZN is currently running which are both misunderstood by the market and are also a great long term benefit to shareholders.

Randy Kurtz

Posted 6:36 PM EST February 03, 2009

yukiii

2 Comments

Amazon (AMZN) delivered nice results, but let's face it, they were not fantastic enough to justify propelling the share price 20%. I admit, I got my head handed to me on a plate, as my 800-share short position caused some serious hurt. I guess I drank too much of Broadpoint Capital's Analyst Tim Boyd's bearish Kool-Aid, but as a consequence of the violent run up, I think the shares have become even more overvalued.

The stock ran up more in one day than the company is expected to earn in the next five years combined. Its insane multiple of 40 times 2009 estimates of $1.48 borders on calamity. I realize that AMZN deserves a higher multiple, since it is one of very few stocks still generating earning growth, but more in the range of 20-30% higher, not 100% or 200% loftier than such names as RIMM, AAPL, MSFT, EBAY , CSCO and INTC, averaging about a 15 PE multiple.

Fourth quarter was good, but not that good; when the company issued fourth quarter guidance back in October, ...(Read more of this comment)it comprised a large range. Sales guidance was $6 billion to $7 billion, while its operating earnings forecast was $145-$305 million. Well, AMZN didn't even end up surpassing the top end of its revenue guidance when it posted sales of $6.7 billion (they came in the top 30% of the range). AMZN also came in within the top 30% of its earnings range, prompting the question: What is all the fuss about? I just don't see how the market construed this as a beat? Am I missing something? Could it be excitement about Kindle sales? Bezos made it clear the Kindle reader was attracting strong demand, but refused to provide details. Is this a 'pump and dump' scheme?

First quarter guidance was sketchy: AMZN is supposed to be a 'growth stock', yet its low end guidance for its first quarter indicates a falling off as much as 37%. AMZN's operating income guidance is so wide, you could sail an aircraft carrier through it, comprising a range of $125 million to $210 million. The top of the range is 85% higher than the bottom. When it comes to its revenue guidance range, it is much tighter. The spread of $4.52 billion to $4.92 billion, represents the top end, at only 10% above its starting range. Growth stocks are not supposed to see earnings declines, and AMZN will make sure 'at all costs' it avoids this calamity. My best guess is, they will repeat their 4th quarter scenario by coming in within the top 30% of guidance ranges in both sales and earnings, delivering sales of $4.8 billion and earnings of $185 million.

Gross Margin issue: If you compare gross profit margin on a year to year basis (4th Q 2008 versus 4th Q 2007) its decrease does not seem that alarming - dropping only 50 basis points from 20.6% to 20.1%. The decrease represents only a 2.5% reduction. However, if you compare AMZN's gross profit margin sequentially, the picture begins to look bleaker. The fact is, AMZN produced a 23.4% gross profit margin in its third quarter. In just one quarter, AMZN incurred a 350 basis point loss to its gross margin, signifying a 14% overall deterioration. That is significant when you consider new services with very high margins, such as music and video downloads, seem unable to slow the margin erosion. Remember, AMZN is a retailer, and gross profit margin to a retailer is like fish is to a fisherman, "sacred."

Bottom line: The shares have simply gone up too far in too short of a time frame and are due for a nice dose of profit taking, as longs begin to ring the cash register. The stock also received some nice upward momentum due to massive short covering, but this covering will soon begin to abate. When reality finally starts to set in and the 'giddiness' over the quarter evaporates, the stock will sink to a more appropriate multiple. Hopefully longs will have the sense not to get too greedy and use this recent strength as a selling opportunity, before their gains turn quickly into losses. Don't get me wrong, I think AMZN is an extremely well managed company, with tremendous prospects. It is just too pricey.(Show less of this comment)

Posted 4:54 PM EST February 03, 2009

Posted by: tiempolargo

<the $0.05 from the "impressive" earnings beat, and you have a company that reported lower basic eps for the qtr!>

- that was from non-operating income disclosed as foreign currency translation gains during the qtr

Posted 4:50 PM EST February 03, 2009

Posted by: tiempolargo

what a fluff piece.

sounds like the author may be a shill for the gambling hedge funds that are trying to cause a short squeeze in the ponzi amzn business model.

there is no scale achieved here. operating income for the qtr just ended was flat compared to last year's qtr. subtract the $0.05 from the "impressive" earnings beat, and you have a company that reported lower basic eps for the qtr!

amzn offered FREE SHIPPING again and was helped out by horrendous weather at the end of the quarter that forced people to buy christmas gizmos and books online. who cares if they increase top line if they can not translate that into profitability?

amzn is all smoke and mirrors designed to allow its mngt to suck out compensation.

would you compromise your ethics and risk it all for a river of $300 million a year?

would you use creative and aggressive accnting to inflate revenues and lump various expenses into broad categories to misdirect or m...(Read more of this comment)