Folks, lets be rational for a moment ...
At the end of last week, when it closed at 223, Amazon.com (AMZN) had a Price/Book ratio of 65.4 and a Price/Sales ratio of 25.2.
Additionally ...
- Amazon.com has no patented technology nor does it possess any proprietary intellectual property or any other asset unobtainable by its competitors. In sum, Amazon.com is in a market with little barriers to entry.
- Subsequently, Amazon.com is facing fierce competition from Books A Million, Borders, and Barnes & Noble.
- Amazon.com's fiercest competitor, Barnes & Noble, has 10 times Amazon.com's revenue and generates 50 times more cash from operations, leading us to believe that Barnes & Noble will be able to buy an entire army of web designers and programmers and will be able to give Amazon.com a hard time.
- Amazon.com's horizontal integration into the music and video markets will position them against a foray of entrenched competitors who are smarter and more flexible at marketing these other forms of media unfamiliar to Amazon.com.
- Amazon.com has no exclusive agreements nor any bargaining power with its suppliers (i.e., book publishers, music labels, and movie producers).
- Amazon.com's customer base consists of Internet shoppers who are very adept at jumping around from retailer to retailer looking for the best bargains and thus ensuring no economic profits for Amazon.com's commodity-like products.
- Amazon.com's intention of being the "Wal-Mart of the Internet" will be foiled when Wal-Mart vamps up its presence on the Internet. Incidentally, Wal-Mart has 310 times Amazon.com's total revenue and generates 2000 times more cash from operations. So, if Wal-Mart wants, they can buy every existing web designer and programmer and give BOTH Amazon.com and Barnes & Noble a really hard time.
- All of these factors have already deteriorated Amazon.com's growth rate in that it is anticipated that Amazon.com's sales growth rate will decrease from 840% for fiscal year ending (FYE) 1997 to a much smaller 320% for FYE 1998.
Amazon.com currently has an Earnings Per Share of -$1.79 and has never had a profitable year nor even a profitable quarter. Analysts forecast that the Amazon.com will not have a profitable quarter during the next two years, if ever.
It would appear that Amazon.com has no competitive advantages that will allow the company to sustain its high share price in the equity market.
With a Price/Sales ratio of 25.2 and its dismal strategic outlook, would you consider Amazon's present valuation by the market to be rational? Or, is this a bubble about to pop?
Please tell me what you think...
Please tell me what you think ... e-mail me at:
IntrinsicValueInvestor@Yahoo.com |
