April 29, 2013
Last week Amazon reported an $0.18/share earnings on a lower than expected revenues for its past quarter. The shares seesawed after hours and finally ended down some $20 on Friday. The earnings were almost twice what the street had expected, but think about this, The street was expecting this company to earn a measly $40 million. This is a 17 year-old established company with a market capitalization of $130 billion, it should be expected to do much better.
The thing with Amazon is that investors seem to be so emotionally entangled with company that they have no logic when it comes to its share price. Since its inception, Amazon has played the "long-term" card and it continues today, as in the earnings don't matter because the company is investing in the future.
When this glorified future will materialize for Amazon is anyone's guess. Perhaps in another 17 years or more? Whatever the case, for those who may believe that the latest pullback may signal a return to sanity for this stock, don't believe it. Going by history, it won't be long before Amazon's shares will wipe out all losses and march on to set new 52-week records. It's just that kind of a company.
April 13, 2013
January 25, 2013
Much has been said about how Amazon's high stock price is unjustified. This morning my boss sent me a link that reminded me again how ridiculous Amazon's share price has gotten as of late. The article summed it up well by noting that if Apple were to have the same PE ratio as Amazon, its share price would be $145,000.
I suppose another way to even better demonstrate this insanity is to use the same equation on Berkshire Hathaway class A shares, which would send them to an astronomical $31 million/share.
My boss tried to justify Amazon's stock price by mentioning their high profit margins. So I decided to take a look at what Amazon's gross margins are and how they compare with some other companies. Here's a short list:
- Amazon: 25%
- Apple: 39%
- Google: 57%
- eBay: 69%
- Microsoft: 74%
- Intel: 63%
- Priceline: 82%
- Wal-Mart: 25%
- Ford: 18%
- Oracle: 80%
- GE: 26%
As you can see Amazon's gross margin is way below its peers, but in line with that of Wal-Mart's. Proof that Amazon is nothing more than a glorified, high-tech super store.
As to why its stock continues to rise despite any rational justification, another person said it well. Traders play Amazon as a momentum stock and it has become a self-fulfilling prophecy. Logic indicates that it should come down crashing hard, but this stock escaped logic long ago and it'll be foolhardy to bet against it now.
May 29, 2012
I can't possibly the only one who's had a perverse pleasure in seeing Facebook's stock slide after the much ballyhooed IPO. It's not like I wish the company bad fortune or dislike its boss, although I don't think much of Facebook as a product nor do I use it much. It's just that something so hyped and overblown seems so out of touch with reality that one doesn't want to see it take off like it's 1999, specially if one is not along for the ride.
Given the nearly daily declines of Facebook's stock, one does however wonder where the bottom of this stock really is. At the current level of $29, it probably doesn't have much further to go, give or take a couple of dollars. At the same time something tells me that the big investors are just waiting to pounce on the stock once they believe it has sufficiently deflated.
Us mortals will know where that bottom is long after it has passed, but if one can time a purchase somewhere near that bottom, chances are that it will pay off handsomely. There's probably a lot of money on the sidelines waiting to get in and when that happens the stock would snap back with a vengeance.
Forget valuations and future earnings. This one seems to be going on pure psychology right now. Hell, even I'm thinking about getting in
May 19, 2012
Seems like everything was on hold yesterday except for the Facebook stock price gyrations. In the end it eked out a measly 23 cents over its IPO price of $38 and that with some grand assistance from its underwriters and backers.
That assistance was so obvious, specially towards the end of the trading session. You could tell the stock really wanted to break below $38, but every time it touched that price it was nudged back up. Looked totally artificial and trigger-directed. Obviously the bankers didn't want to look foolish by having the stock close below IPO's price. That would have meant that they didn't do their homework. At least this way they can claim they priced it in the Goldilocks zone, not too hot, not too cold, but just right.
Well, the founder and a bunch of other people that matter became uber-wealthy yesterday and there's still a chance that the stock may get its footing and actually climb. Sure, it's an expensive stock with the P/E ratio currently at 122, but Amazon's P/E is an astounding 175. Going by Amazon's measure, Facebook should at least be worth $55 per share.
May 9, 2012
Yeah I know, P/E ratio is so old school but as I read the post below I was blown away by how ridiculous Amazon's P/E ratio of 184 actually is.
For a quick verification I went down a list of stocks I follow and none even came close to that figure. Even Priceline with its unbridled share price growth, has a P/E of 34. The rest of them average somewhere in the teens.
Granted, Amazon is the number 1 online retailer, sells a nifty reader and a tablet, is a cloud computing pioneer, and is trying to break into the high fashion market, but 184?
Maybe if it were a startup with expectations of explosive growth in a year or two, that figure could be justified. But Amazon, at nearly 20 years old, is hardly a new kid on the block.
How is AMZN worth 13 AAPLs? - Apple 2.0 - Fortune Tech
May 6, 2012
Last week came the news that Target stores will no longer carry Amazon's Kindle readers. The bold move was basically a retaliatory reaction by Target to what is known as showrooming.
Showrooming is how Amazon encourages its users to visit various physical stores, check out or even try out various merchandize and then go back to Amazon to order them for cheaper prices. In a sense Amazon uses the physical stores as showrooms for free and that creates an unfair advantage in favor of Amazon.
Sure, people can visit Amazon's site too to shop around but a page visit costs Amazon a tiny fraction of a penny while a shopper roaming the isles of a store, and specially inspecting and trying various items could cost the stores multiple dollars.
Target may feel good about removing Kindles from its shelves but that maneuver will be but a blip on Amazon's bottom line. Making the playing field fair will be tall order but for starters Amazon should be required to collect sales taxes on all items sold. If there's heavy resistance, then stores should be exempt from collecting sales taxes as Amazon is.
Paying sales taxes on Amazon purchases will not be popular, but if Amazon is allowed to push physical stores out of business through the unfair loopholes, that will result in a monopoly and there's little doubt that its pricing policy will not favorable by any measure once the competition is wiped out.
April 22, 2012
There's little doubt that speculators, specifically commodity players, have a huge hand in the price swings of the items we use every day. The below article link suggests that as much of a quarter of the price of gasoline is due to speculators driving up the price of oil. That's not so hard to believe.
While the paper commodity market (aka futures) can be useful in some instances, for example to insure companies against price swings or smoothing out price fluctuations, it's ironic that most of the swings and fluctuations are likely caused by the futures themselves.
I'm not sure what can be done about the commodities markets. The capitalist nature of the markets is always resistant to regulation and control, instead placing its confidence in the markets' ability to self-regulate and self-correct.
Maybe so, but can vital and essential material necessary for life be entrusted to the vicissitudes of markets that are easily manipulated and corrupted? The prices of oil, rice, wheat, oranges, and pork bellies are so easily relegated to trading pits and people that never come in contact with what they buy and sell. But what if that self-correction doesn't come in time?
Ban ‘Pure’ Speculators of Oil Futures - NYTimes.com
October 26, 2011
Two days before amazon announces earnings, it gets glowing remarks from a bunch of analysts with price targets of $280, give or take.
Then amazon announces dismal earnings last night and takes a plunge down to around $200 today. What were these analysts thinking? So they just induce a bunch of people to sink money into amazon only to wake up to heavy losses two days later.
There’s really no need to wonder about where these analysts get their info. The answer is that the good ones throw darts, and the other ones, let’s just say, have other motives.
August 5, 2011
Older Posts »
I'm not naive to the point of believing that Google is all good and no evil, but in this case I side with Google.
What the big patent trolls like Oracle and Apple and Microsoft are doing by burying Android in lawsuits and threats is stifling innovation and taking away choice from consumers.
I'm all for protecting new ideas, but patents are no longer used in the way they were envisioned. They no longer protect ideas and innovation, but are used as weapons against anyone who can be leeched for money. And the leeches are typically not the original patent holders either, but sleazy patent trolls and patent mills.
Official Google Blog: When patents attack Android
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