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I know that I'll get skewered for this, but here goes: recently I've convinced myself we are on the verge of a very serious Amazon stock correction. Just today

by dkrich 10y ago

I know that I'll get skewered for this, but here goes: recently I've convinced myself we are on the verge of a very serious Amazon stock correction. Just today I saw three separate articles (without seeking them out) giving umpteen reasons Amazon is going to a trillion, or that Amazon is only getting started. Then I turned on CNBC during lunch and what are they talking about? Amazon. There's simply too much positive sentiment around this company and it makes me very nervous. It reminds me of 2007 when everyone was making a killing on real estate and the idea was laughable that the market would reverse. The stock is way overbought and the only questions I have are "by how much?" And "when is the reversal coming?" There are other reasons I'm skeptical about Amazon remaining at its current valuation. One major one is that the meteoric rise in the stock price has coincided nicely with the economic recovery. Amazon's ecommerce business is one that's built for good times. It remains to be seen how they fare in downtimes. What I mean by that is that much of what I see people buy on Amazon (myself included) are largely frivolous gadgets that one simply wouldn't buy in a time of economic fear. Right now people largely feel wealthy and feel comfortable shelling out for prime memberships and willing to pay a premium for convenience. In a down economy that's the first thing to go. Of course a down economy will weigh heavily on most companies, but I believe especially so on Amazon because it is a stock that is already overbought and relies on people buying shit they don't need for the sake of convenience. Apart from that I believe they will face increasing competition from Alibaba, Walmart, and others. Finally, there are the numbers. Despite the $400+ billion valuation, Amazon did less that a billion in profit from their ecommerce business last quarter! The stock shot up because that was higher than analysts predicted! I have serious doubts about the long term profitability of Amazon's ecommerce business. Physical delivery of goods, particularly last mile delivery is just too expensive. Sure, drones might come but I wouldn't base an investment on that hope. My prediction is that an economic downturn is going to send this stock into a tailspin.

ricardo_piano 10y ago
Amazon already went through 2 downturns. Dot com bubble and the last recession. During the recession they faired extremely well. they've been facing tough competition from Walmart since the late 90s. Alibaba is still miles away from competing in the same areas as Amazon although that will change with time. For now, if you're a consumer, aliexpress is only good for buying cheap low quality items. If there's something they've figured out, it's logistics and how to deliver a product as fast and cheap as possible. Everything about their system is optimized for this. Now with their venture into contract companies to deliver goods they can bypass more expensive UPS delivery. Now do I think they're stock is overvalued? Yes, but I don't see a doomsday scenario happening.
- dkrich 10y ago
  The difference to me is the valuation- during previous downturns they weren't trading at a $400 billion market cap. I think a lot of people assume that because they're amazon that they'll crack the last mile delivery problem, a problem that FedEx and ups, two exceedingly smart and successful and well run companies have not, not to mention the usps. FedEx and UPS want no part of last mile delivery because there's no money in it. The money is in flying it across the country with 300,000 other parcels. I'm very skeptical that Amazon can warehouse and deliver goods to your door with a significant margin, and a significant profit margin is what will eventually be required to justify a $400 billion valuation. To date, this has not been the case, and the fact is that while they've made shopping an amazingly easy process, they haven't made a lot of money doing so, certainly not compared to the few other companies trading at similar valuations. I'm not predicting a doomsday scenario in that amazon is going to go belly up. I just think the stock is headed for a dive.
  - thinkling 10y ago
    Not having net profits does not mean that parts of your business are not profitable. You may want to take a closer look at Amazon's financials and see what kind of free cash flow they're generating before they reinvest that cash in expansion and new businesses. Net operating cash flow for 2016 was $16B and the trend is strongly upwards. https://secure.marketwatch.com/investing/stock/AMZN/financials/cash-flow https://secure.marketwatch.com/investing/stock/AMZN/financia...
    - dkrich 10y ago
      Right, but free cash flow is one of the most common areas of a balance sheet to use deceptive accounting to show huge numbers. Amazon is notorious for this, actually, particularly with their widespread use of capital leases. A big reason that that number has jumped so much is because of their increased investment in AWS hardware which they lease instead of purchasing.
      - thinkling 10y ago
deleted 10y ago
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albeebe1 10y ago
Just today I saw three separate articles (without seeking them out) giving umpteen reasons Amazon is going to a trillion, or that Amazon is only getting started. umm, i call bullshit
nuane 10y ago
My understanding is that Amazon makes their money from aws, then builds their brand through their eCommerce site and other gadgets/projects. Those projects (like aws) have the potential to make bucko bucks, but as long as Americans income continues to diminish, the profitability of Amazon's core business will stall. But I agree that Amazon will become the first $1 trillion dollar enterprise, but after weathering another economic downturn. Amazon is the Walmart of today, and is ruthlessly out competing every retailer (retail is in a recessive state, and I'm wondering what happens when SEARS goes under). To throw a curve ball back, I do think Amazon is politically vulnerable. I don't shop with Amazon, and I tell everyone not to shop at Amazon. The company doesn't treat their average employees well, and should allow all their workers to form and join a union if they want. USPS is a great place to work, FedEx and USPS are pretty great too, Amazon is a garbage place to work---
- dkrich 10y ago
  I don't necessarily think that's the case. Amazon did make more from AWS than their ecommerce business last quarter, but it wasn't a lot more (less than a billion in profit). They will face as much or more competition in this area than in the ecommerce space. In any case, since a lot (I would say most) of Amazon's market cap is based on perceived value and growth of its distribution and ecommerce business, if the fundamentals aren't there to make larger profits long term, there's no way the stock can maintain its current valuation. I do shop on Amazon a lot, because I live in a city where the convenience factor is too great to drive to a store, and believe all this in spite of that. I agree that their working conditions are awful, but unfortunately I don't think most people care when shopping. Wal-Mart has taken a lot of flack for that over the years and it hasn't slowed them. In fact it was only about five years ago that there was a best selling book about how Wal-Mart was taking over the world and had to be stopped at all costs. I don't hear that as much these days and in fact it seems that they are viewed as an underdog. Things can change very quickly.

by dkrich 10y ago

ricardo_piano 10y ago

Amazon already went through 2 downturns. Dot com bubble and the last recession. During the recession they faired extremely well. they've been facing tough competition from Walmart since the late 90s. Alibaba is still miles away from competing in the same areas as Amazon although that will change with time. For now, if you're a consumer, aliexpress is only good for buying cheap low quality items. If there's something they've figured out, it's logistics and how to deliver a product as fast and cheap as possible. Everything about their system is optimized for this. Now with their venture into contract companies to deliver goods they can bypass more expensive UPS delivery. Now do I think they're stock is overvalued? Yes, but I don't see a doomsday scenario happening.

dkrich 10y ago
The difference to me is the valuation- during previous downturns they weren't trading at a $400 billion market cap. I think a lot of people assume that because they're amazon that they'll crack the last mile delivery problem, a problem that FedEx and ups, two exceedingly smart and successful and well run companies have not, not to mention the usps. FedEx and UPS want no part of last mile delivery because there's no money in it. The money is in flying it across the country with 300,000 other parcels. I'm very skeptical that Amazon can warehouse and deliver goods to your door with a significant margin, and a significant profit margin is what will eventually be required to justify a $400 billion valuation. To date, this has not been the case, and the fact is that while they've made shopping an amazingly easy process, they haven't made a lot of money doing so, certainly not compared to the few other companies trading at similar valuations. I'm not predicting a doomsday scenario in that amazon is going to go belly up. I just think the stock is headed for a dive.
- thinkling 10y ago
  Not having net profits does not mean that parts of your business are not profitable. You may want to take a closer look at Amazon's financials and see what kind of free cash flow they're generating before they reinvest that cash in expansion and new businesses. Net operating cash flow for 2016 was $16B and the trend is strongly upwards. https://secure.marketwatch.com/investing/stock/AMZN/financials/cash-flow https://secure.marketwatch.com/investing/stock/AMZN/financia...
  - dkrich 10y ago
    Right, but free cash flow is one of the most common areas of a balance sheet to use deceptive accounting to show huge numbers. Amazon is notorious for this, actually, particularly with their widespread use of capital leases. A big reason that that number has jumped so much is because of their increased investment in AWS hardware which they lease instead of purchasing.
    - thinkling 10y ago

deleted 10y ago

[deleted]

albeebe1 10y ago

Just today I saw three separate articles (without seeking them out) giving umpteen reasons Amazon is going to a trillion, or that Amazon is only getting started. umm, i call bullshit

nuane 10y ago

My understanding is that Amazon makes their money from aws, then builds their brand through their eCommerce site and other gadgets/projects. Those projects (like aws) have the potential to make bucko bucks, but as long as Americans income continues to diminish, the profitability of Amazon's core business will stall. But I agree that Amazon will become the first $1 trillion dollar enterprise, but after weathering another economic downturn. Amazon is the Walmart of today, and is ruthlessly out competing every retailer (retail is in a recessive state, and I'm wondering what happens when SEARS goes under). To throw a curve ball back, I do think Amazon is politically vulnerable. I don't shop with Amazon, and I tell everyone not to shop at Amazon. The company doesn't treat their average employees well, and should allow all their workers to form and join a union if they want. USPS is a great place to work, FedEx and USPS are pretty great too, Amazon is a garbage place to work---

dkrich 10y ago
I don't necessarily think that's the case. Amazon did make more from AWS than their ecommerce business last quarter, but it wasn't a lot more (less than a billion in profit). They will face as much or more competition in this area than in the ecommerce space. In any case, since a lot (I would say most) of Amazon's market cap is based on perceived value and growth of its distribution and ecommerce business, if the fundamentals aren't there to make larger profits long term, there's no way the stock can maintain its current valuation. I do shop on Amazon a lot, because I live in a city where the convenience factor is too great to drive to a store, and believe all this in spite of that. I agree that their working conditions are awful, but unfortunately I don't think most people care when shopping. Wal-Mart has taken a lot of flack for that over the years and it hasn't slowed them. In fact it was only about five years ago that there was a best selling book about how Wal-Mart was taking over the world and had to be stopped at all costs. I don't hear that as much these days and in fact it seems that they are viewed as an underdog. Things can change very quickly.