Michael,
What I find especially intriguing about AMZN is that the financial problems are so obvious. And yet the sell-side guys are pushing this company. Are they unaware of the implications of the cash flow statement, or is it more important for them to generate investment banking funds? Or are these guys just plain incompetent? I think a sure sign of a bubble stock is when the sell-side guys talk about price to sales ratios instead of cash flow.
About a year ago I did a regression analysis on AMZN's expenses, and came to the conclusion that mathematically they behaved like variable costs. At the same time the sell-side guys were talking about these new automated distribution centers curtailing costs. If anything, they seem to have increased expenses. Now maybe I'm off base, because I suppose it's possible that what we're seeing is a shift to at least semi-fixed costs and the distribution centers are running at low capacity.
My thinking is that AMZN's business is doomed from the start. It requires too many manual operations because the goods it carries are not interchangeable. If I want a copy of Anna Karenina, they cannot substitute Men Are From Mars, Women Are From Venus. That means that the number of SKUs must be enormous, and each one requires significant manual handling. The only cost savings they have is a cheap physical plant.
If I had the cajones I'd be shorting this one. Unfortunately, it seems to be a plaything of the momentum guys, and there is no telling how big this bubble must get before it bursts.
TTFN,
CTC |
