The Best Time to Short AMZN is NOW –6/8
The Best Time to Short AMZN is NOW –6/8
Amazon also went ahead and released Unbox, a video download service that received some pretty awful reviews, particularly in comparison to Apple’s storefront. This is another area where there are several established players, though no one has really been able to make the model work the same way it has worked for music. Even with broadband, movies can take a prohibitively long time to download, take up a large amount of server bandwidth, as well as a good deal of physical memory. Not to mention, unless you want to go through the hassle of hooking up your computer to your TV, you’ll be confined to your computer screen for video watching. Like Unbox, AMZN’s partnership with TiVo has generated little response, for similar reasons. Overall, I think this is another example of an expensive, early, and unattractive business. Despite all my reservatios, I’ll assume an EV of $800M for the digital opportunity, or about 8x the EV of Napster.
Conclusion
Reviewing many of AMZN’s most touted growth prospects reveals that, beneath the hype, AMZN faces significant competition in most areas, and even if we assume it becomes a market leader in each category, the total value of the opportunity is not particularly attractive currently.
Valuation
Netting out the $3B in non-core, immaterial businesses leaves us with a $27B market valuation on Amazon’s e-commerce business. Using Amazon’s upper end EBIT guidance for FY07 ($563M) gives us a forward valuation of 48x/EBIT. I use EBIT to net out the wild fluctuation in tax rate, which came in in the low 20%s vs. 40-50% historically for q1, and contributed to a large portion of the blowout q1. In addition to being an absurd multiple on its own right, this is well above EBAY (20-25x) and GOOG (25x-30x),
To be Continued….
(Meanwhile, here is a link to see my past articles of some good picks:)
http://www.mystockwinners.com/weekly-pick-intv/
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