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Technology Stocks : Amazon.com, Inc. (AMZN)
AMZN 227.78+0.2%1:17 PM EST
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To: Glenn D. Rudolph who wrote (27233)11/19/1998 11:49:00 PM
From: Techie  Read Replies (2) of 164684
 
Why do I state it or why do I think that way? If it's the 2nd, here is your answer.

AMZN is using the shareholders capital to gain market share in a low margin commodity business. There is very little barriers for entry outside of brand recognition. When existing strong brands enter the business it would have an adverse effect on their pricing power.

Cost of increasing revenues is incredibly high (mainly marketing). I don't know about you, but I don't know many people who want to chit chat for days before buying a book or CD. So I don't think the "community" angle works for shopping. Even if it did, you can chat your heart out and then go buy it somewhere else if it's cheaper.

Basically the "return on capital" isn't a sure thing at all. Tomorrow everybody and their mother would be selling on the net. It will be hard to maintain an edge without being price competitive.

Let me put it this way. Just assume the shares would be trading at a multiple of 50 in another 5 years. Given a market cap of 8B today, they have to produce at least $3 in earnings in 5 years to be worth $8B then, not now. That's $144MM in net income based on today's 48MM shares. That's roughly $10B in revenues with 1.5% net margin.

Would you lend me money for free for 5 years and shoulder all the risks? If not, apply some discounting to arrive to a fair market cap today.
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