After some reflection last night, I took a mental step back to look at this market and AMZN in particular. Looking at the numbers, mine and what the street expects and what AMZN says in their filings, I can really make no case for 80% of this valuation. Amazon's risk is high with major players entering their arena .. don't think that AMZN market cap meeting B&N isn't a slap in B&N management's face, and B&N has already had a nice run-up in stock price as well.
I currently have a 401K plan that is long this ultra-bullish market and I continue to contribute to that. So I've decided, if need be, I'll sell my non-401K longs if AMZN continues going up and build up a nice short position in AMZN. I'm willing to go 100% short AMZN in my non-401K portfolio because I'm (1) young, (2) think there is a major divergence between reality and the market, and (3) bearish given a possible Japanese crash and the ultra-bullishness on Wall St. now. I'm short right now with equal portions at 60, 73, and 94. I'll probably save my last salvos for prices above 100. I plan on holding my position over a year.
AMZN stock price is momentum-driven and there are some # of investors who are simply investing without regard to valuation/competition/etc. There is intense internet hype right now. Nobody has to tell me the internet is the new "paradigm" or that it will grow to become the next TV. I've been using internet since 1985 when it was called ARPAnet at Stanford. But there is a big difference, IMHO, between commodity retailers that use internet as a new channel and the purer internet plays like AOL and especially Yahoo! I think AOL and Yahoo! are very overvalued as well but I think there really is no model for valuation there. However in Amazon's case, a very good case can be made regarding B&N and Borders, esp. since both of them will have competing web retailing sites. Also, Amazon is losing money in no small way.
I don't agree with the arguments that say there is no barrier to entry, but I would say there are easily surmountable barriers for any book/publishing company that has deep pockets. Hence, there are major entries from Bertlesmann and Cendant.
I think Amazon will continue to grow revenues at a good pace for next few quarters since I'm not seeing major pushes by B&N et al. at the consumer level. When B&N starts to do major advertising and exploits their physical stores in the internet wars, then I see AMZN as losing mindshare. (Same for Borders and Doubleday/Dell/etc.)
Why don't I play the game than Ron does so well? For one, I'm horrible at timing, as shown by my current short positions, but I'm usually correct in the long-term. So rather than jump in and out at all the wrong times, I'm simply going to build my short as the hype and momentum continues.
Even if Amazon makes $1 billion in sales, they are currently valued at over 2x the P/S as B&N ... that means the idea that AMZN will have much better margins is already built into the price 2 years from now. Also, Amazon must build warehouses. They must stock books to compete with delivery times of the big sellers. How much better margins will Amazon really get?
Enough of my rambling ... |
