| Stock (Symbol) |
Stock Price |
Amazon.com (AMZN)
|
$125
|
| Data is as of |
Expected to Report |
Sector |
August 24, 2010
|
Oct 22
|
Retail & Restaurant
|
| Company Description |
|
Amazon.com, Inc. (Amazon.com) offers services to consumers, sellers, and developers through its retail Websites. It also manufactures and sells the Kindle e-reader. The Company offers programs that enable sellers to sell their products on its Websites and their own branded Websites. Amazon.com serves developers through Amazon Web Services, which provides access to technology infrastructure that developers can use to enable any type of business. In addition, the Company generates revenue through co-branded credit card agreements and other marketing and promotional services, such as online advertising. Amazon.com has organized its operations into two principal segments: North America and International. In February 2010, the Company acquired Touchco, a touch screen technology company.
|
| Sharek’s Take |
 Amazon had a tough time last quarter. Profits missed estimates due to currency fluctuations and money getting set aside for future expansion plans (which have yet to be announced). The company is going to need money to expand overseas. Most of the current distribution centers are in the US and UK. Global expansion is great for the long-term but will hurt profits in the short-term.The iPad should hurt sales of Kindle, but there’s not a lot of Kindle data that AMZN gives us. The company did lower the cost of the Kindle and has put more into marketing (which hurt profits last quarter), but the question that remains unanswered is did the iPad’s debut crimp Kindle sales and therefore AMZN profits? |
| One-Year Chart |
| Looking at the one year chart, profit growth is expected to be only 9% and 19% during the next two quarters. With a P/E of 48, AMZN is expensive. Estimates just fell too, so I can’t say I feel AMZN will beat the street and come out with 20% profit growth.I’m considering selling this stock. Although I like the fact management is thinking long-term by advertising and putting up warehouses, the stock might not do anything for a year. Now, once the company does its expanding, will profit growth crank up to 60%? If it does then the stock will probably rise before that and we could miss the boat. |
 |
| Profit Growth |
Earnings Table |
| I’m trying to be nice to this stock, and look for a way to keep it in the portfolio. The best thing AMZN has going for it in the short run is revenues continue to grow at 40%. Amazon’s sales were up more than 40% in each of the last four quarters (41% last quarter, 46% 2QAtrsAgo). If sales can keep growing at 40% I can make a case for owning the stock through slowing profit growth (the thought being once expansion costs are out of the way profits would then shoot higher). But sales growth is expected to slow to 34%, 28%, 25% and 25% during the next four quarters. |
 |
| Beat the Street |
| AMZN missed by 10 cents last quarter. |
| Annual Profit Estimates |
| Annual Profit Estimates got cut. Whew, man. Amazon had positive momentum all year in this category and that just got washed away. |
| Future Quarters |
| Profit growth is expected to be below 20% in each of the next three quarters. AMZN had been on a roll of beating revenue estimates, but sales only came in slightly over estimates last quarter. If sales can come in above estimates I think profits can too. AMZN beat revenue estimates by less than 1% last quarter, compared to 4%, 5% and 8% in the prior quarters. It doesn’t look like AMZN will be beating revenue estimates — so profit estimates might not get beat either. |
| Fair Value |
| AMZN’s Fair Value P/E should be 35, down from my estimate of 45 last quarter and 50 two quarters ago. AMZN is overvalued now and even if we hold the stock a year it might not appreciate. |
| Year |
Profits |
x |
P/E |
= |
Price |
Upside/Downside |
| Today |
$2.61 |
x |
48 |
= |
$125 |
|
| 2010 Fair Value |
2.61 |
x |
35 |
= |
91 |
-27% |
| 2011 Fair Value |
3.53 |
x |
35 |
= |
124 |
-1% |
|
| Ten-Year Chart |
| Amazon’s ten-year chart shows a choppy ride higher. After delving deep into the numbers, I think the stock could take another dip like we’ve seen during the past decade. |
 |
| Power Ranking |
Bottom Line |
Growth Portfolio
N/A
|
The question is do we sell one of the worlds premier retailers while its growing revenues 40% and before the company takes over internationally? For me to give AMZN upside to fair value of 20% by next year, I would have had to pin a 42 P/E on the stock, which could happen.Amazon is a solid long-term holding but the short-term looks like the stock isn’t going anywhere. AMZN is overvalued right now and the way things look this stock could be $125 a year from now. Not only that, but estimates just declined so that $125 might be optimistic a few months from now. I’m trying to be nice, but I just don’t see a lot of good things going on right now. Even when I dive deep into the numbers –like analyzing expected sales growth — I just don’t feel anything positive coming until a year from now.I’m going to have to sell AMZN in the Growth Portfolio today. I love this business and appreciate management trying to build for the future, but at 48 times earnings Amazon is expensive. That P/E has little chance of rising this year and with profit estimates falling, this stock has little momentum. |
Aggressive Growth Portfolio
N/A
|
