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Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (17775)	9/22/1998 9:19:00 AM
From: llamaphlegm	Respond to of 164684

Interesting post from TMF -- one of the Fools there, after posting back in august that he would soon post a spreadsheet or some numbers with assumptions re: amzn, just did, and rimpinths replied. Jeff, Thanks for posting some concrete numbers on Amazon. I don't know about the other bears, but your analysis was actually more detailed than I expected. Overall, I find your estimates to be very reasonable. As bearish as I am on AMZN, I would not argue that gross profit margins of 25% and revenue of $1 billion in 2001 are impossible. I'd call it a tempered optimistic outlook. IMHO, all of your numbers are within reach for Amazon. If there's one thing I'd debate, it's allocating only $17 million for advertising in 2001 versus $56 million this year. You're a little too optimistic about the resiliency of the Amazon.com brand name. There's no point in arguing that fact, because I will accept all your numbers and still wonder how you can continue to justify holding AMZN at these still lofty prices. I want go through this step-by-step to make sure that I am interpreting your numbers properly. Your estimate for revenue is $1.079 billion in 2001. That's comes from your estimate of 8.3 million customer accounts, with $32.5 revenue per account per quarter. That comes to 8.3 million * $32.5 * 4 = $1.079 billion. By the same reasoning, you estimate $0.922 billion in revenue in 2000. That assumes a year-over-year revenue growth rate of 17% in 2001. You estimate a profit margin of 3.6% in 2001. With $1.079 billion in revenue, that will mean about $38.8 million in profit. Split between your estimate of 61 million shares, that comes to about $0.64 per share. At its current value of $85.50 per share, that is a P/E ratio of 134 if the stock doesn't appreciate in value for the next three years. If we instead assume that the P/E ratio will be such that PEG = 1, or a P/E ratio of 17, then the stock will be trading at a little under $11 in 2001! Moreover, an investor would expect some reward for holding a stock for three years. Most likely, they will be looking for a return of at least 10% for holding a stock as risky as AMZN. (That's less than what bond holders get, and they have first dibs on Amazon's assets.) If AMZN is to be worth $11 three years from now, then an investor should pay no more than $9 now for the stock, which just happens to be its IPO price. How can you explain the vast difference between $9 and $85? I relied on your estimates, except for the P/E ratio. Even with a P/E ratio of 50 (which is absurd, IMHO), you'd only have a future price of $32. That justifies a current price of $24, if you expect to make at least a 10% return. Again, that's still way short of $85. I suppose you could always make the claim that good times are just around the corner (as they perpetually are in Amazon's case), but if you stretch your estimates out to 2003, don't forget $50 million in interest expenses on over $500 million in debt. So, Jeff, I guess what I'm asking is this: What am I missing that explains the difference between $9 and $85? What's the missing link? Rimpinths