AMAZON IS RIPE FOR SHORTING if you believe in the following:
1. AMAZON is a retailer and should be valued as such. The metric used for all retailers is same store sales growth. Brick and mortar retailers could continue growing at 20% clip by opening more stores. To evaluate AMAZON's growth since it has no stores, a good way is to gauge the kind of growth it has in a particular category (books, DVD, CD) last year vs this year and adjust it for the growth in # customers. Example, books/DVD/CD are growing at about 30% yearly. Customer base is growing at about 30%. So same customer sales (as in same store sales) aren't really growing much at all. The other categories should be separately evaluated as if it's a different company using the same installed base. Therefore, since the book/CD/DVD category has about 1.5 billion annual sales, assigning a generous retailer multiple of 2 brings about 3 billion market cap. Hence the emerging categories are being valued at 8 billion. Right here, you can see where the significant overvaluation lies.
2. Amazon is burning cash at the rate of 200 M a quarter. It has about 900 M in cash and marketable securities. In 2-3 quarters, it would need to raise cash again. An equity offering at this levels is like admitting that their stock price should be no more than what it is now. This will kill the stock even more. However a bigger float translates to smaller earnings loss per share. Perhaps they'll do it. The only other alternative is more debt. SInce it now has junk status, the double digit interest rate will kill them.
3. Amazon has about 6 months as a specialty retailer. Next year, everyone of the traditional retailer will have sufficient internet presence. The internet is proving to be not really a great place to make money, but rather a great place to save money, by making operations more efficient.
4. Tick tock tick tock, R.I.P by summer of 2001. |
