I think this sums up the Motley Fool position: we are here in 2003, we see this vast enterprise that only the visionary could see in 1998 and appreciate its value. What you saw in 1998 was irrelevant.
This is neither bearish or bullish - merely an observation.
The problem arises, or I should say the observation becomes bearish, when one notes that today's stock price only makes economic sense if that vision of 2003 (Amazon as a vast enterprise) comes to pass.
Just another way of repeating the oft-mentioned fact that nearly the best case scenario of this visionary future is already factored into the stock price.
Let's do a very quick rudimentary reality check of the stock valuation...
Someone posted an excerpt from an interview with Bezos where he said:
My intuition is that over some very large number of years -- and I won't even try to predict how many years -- some 10 to 15 percent of the book market will go online. So, in my own mind, I'm not seeing a huge fraction of the book market being online.
Okay, let's say 15% of the book market ($80 billion world wide) is on-line by the year 2003, the date mentioned above (We're assuming that Bezos was referring to the World market, and 2003 is very generous considering Bezos' choice of adjectives).
That's $12 billion in total, so let's give Amazon 50% (don't laugh) market share. Let's give Amazon a net margin of 5% (again, don't laugh), which gives Amazon profit of $300 million in 2003, an eps of $6.00 assuming no dilution of shares outstanding (okay, so now you can laugh because this is ridiculous) . With a p/e of 50 (they're still growing, right?), that puts AMZN at 300. Discount this for 5 years at 20% gives us a rough valuation of 120 today.
There you go, Amazon is fairly valued today, if you think 20% is a fair risk premium (for me it's too low), and absolutely positively the best case scenario comes to fruition for Amazon economically. Anything less than the best case scenario makes Amazon a poor candidate for purchase as a long term investment at these prices.
I said it before and I'll say it again, optimism and the power of positive thinking are excellent mottoes to live by, but terrible mottoes to invest by.
Good night and good luck to everyone.
John |
