I think many bears on the sector and Amazon are ignoring the reality of the stage we are in at the moment because they are prejudiced by their own preferences
I dropped earlier this year and sold my few shares of AMZN after reading all the bear talk on this thread about the imminent collapse of AMZN. The stock, of course, shot up and I missed out on the profits. Months later I dropped by and the same thing happened again. Against my better judgement I decided to drop by today and, as I knew, all the bears are out in force putting Chicken Little to shame.
I now understand why there is such ferocious hype against AMZN.
Suppose you want to make money as a stock drops. AMZN would be great because it moves a lot. The easy way to do it is to buy puts. It works like this: Suppose you feel Compaq is going down. You can buy 10 Jan put contracts on Monday for $8,750 at the money. That means that for every point that CPQ drops, you make $1,000. But if the stock does not drop you lose every cent you put up. That's a lot of money to go to zero. But some people can take that and live to fight another fight. Now, let's say you did the same thing with AMZN. How much would it cost you? Ans: $29,500. That's a big owwie! Most people can't aford to burn $30,000. Almost any option bet on AMZN is expensive because the option premiums are outrageous (because the stock moves so much). Consequently, if you are betting AMZN stock will go down you will be screaming your lungs out at every AMZN site you can find. This usually takes the same form. Something like: ALERT, ALERT! I just discovered that AMZN will lose money! Here are the ratio tests to prove it! They can not possibly make any profit until the year xxx. The idea is to panic as many people as possible into selling their stock. Did you ever ask yourself why people who feel so negative would spend all their time posting comments on this thread? Maybe they have a 6-pack, are drunk, and decided to waste time here? No? Would believe they are monks and the Pope has ordered them to save the masses from bad guys? No? Oh well, now you got your answer.
The fact that AMZN is losing money is no secret. They have made it perfectly clear that they will lose money this year and lose more money next year. It's no secret! What they are saying to the public is that Amazon is the first company to build a large business (ie lots of real estate and packages) from the ground up based entirely on the web. The warehouses, branding etc cost a lot to get going. The benefit is that you wind up with a business tailored to the web. Everybody on Wall Street knows this. Don't take my word for it. There are places like Zacks that poll the MMs, show the estimates as to how much $ AMZN will lose, and then poll the same brokerage firms to see what they recommend. Here is today's report:
Earnings Per Share
Consensus Estimates
This Quarter (Dec 98) -0.56
This Year (Dec 98) -1.66
Next Year -1.80
Number of brokers
recommending as:
Strong Buy 5
Moderate Buy 7
Hold 5
Moderate Sell 0
Strong Sell 0
I guess the brokers are idiots. The bears on this thread are much smarter.
Another great refrain you constantly hear is show me a plan as to how this business can make any money at all!. This implies the guy has done all kinds of research and can find no hope - therefore he has decided to spend his time alerting the world.
I'm not an expert but let's just look at one thing AMZN is doing: the Amazon Advantage plan for publishers. It works like this:
Publishers deliver, at their expense, stock to Amazon's warehouses. AMZN pays nothing to the publisher until someone orders and pays for the title. AMZN sells stock to pubic at retail or at a slight discount. AMZN then pays publisher at a 55% discount to the retail. If publisher wants their stock back the publisher pays to have it shipped back. Lets see now - to make money you buy low and sell high. Let's take a $25 item. Buy Low (AMZN cost to acquire) = $0. Sell High = $25 - $11.25 = $13.75 profit. Even with a discount to the public you make money. Somebody please explain to me how this model is a money loser.
On the down side, AMZN does lose money on single copy fulfillment. They can cut this a lot by pushing the Advantage plan (do a mailer to every publisher in the LMP!) and if they adopt consignee billing like Walden, B&N, B&T and everyone else does. They will wake up to consignee billing soon and it will save $$$. Another down side is December. It is usually the selling season for MMs - being forced to sell off gains to comply with regs. Frequently there are sell offs before Christmas and a small bounce back after (Santa Claus bounce). January will be a screamer. AMZN stock will be low enough for average buyers and everyone will be reporting big sales.
In summary: if you think the web is dead sell this stock and go buy T bills - you really should not be here. If you believe in the web you gotta take anything you hear, especially bear talk, with a grain of salt. IMHO, buy AMZN and buy some puts below it for safety. Don't sell and don't miss the train like I have twice now. |
