This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

The Cult of Amazon.com

Stocks in this article: AMZNAAPLMSFTINTCWMTCOSTNFLXFBGOOGORCL

NEW YORK ( TheStreet) -- Recently, I wrote at Seeking Alpha that it might be fun to speculate on Amazon.Com (AMZN) dropping after it announced its earnings. I expected it to miss analyst estimates and thought the stock would drop in response.

I was wrong. It rose substantially in after-hours trade.

Betting against Amazon has become a mug's game. Since the market bottom in late 2008 it has risen steadily from a low of less than $50/share to its present high of $265. This has not been accompanied by a rise in earnings, although sales have more than quadrupled. Like an old school dot-com start-up (and .com is still part of its formal name) the company seems to think it's losing money on every transaction but making it up on volume.


This drives conventional analysts batty. In When will the Madness End? asked The Motley Fool after the company's last earnings release.

Paulo Santos compares betting on the stock to buying a bad lottery ticket.

There are measures by which Amazon stock has a reasonable price. Compare its market valuation to its annual sales rate and you get about 2.5, well below the numbers for other technology companies including Apple (AAPL) or Microsoft (MSFT), and not terribly higher than Intel's (INTC) 2.21.

But look at the same ratio in comparison to other retailers such as Wal-Mart (WMT) and Costco (COST) and you get a different story. Wal-Mart's figure is .59, Costco's .44.

Because Amazon is so technologically intensive it's hard to tell how to value it. Is it a retailer or a tech company? The price says tech company but the numbers say retailer. The "smart money" is selling Amazon, according to the Market Daily News, and the smart money is getting clobbered.


Chris Gaun of Gartner Group recently tried to uncover Amazon's cloud revenue number -- it's broken out only as part of "other" on the balance sheet -- and came up with $1.5 billion for 2012, far from the $3.8 billion figure offered by Australia's Macquarie Capital, which most Amazon bulls are betting on.

Still, assume Macquarie is right. Cloud remains a very tiny portion of the company's business, less than $1 billion/quarter this year when the whole firm averaged quarterly sales of $15 billion. Just like 24 times before, Amazon has lowered its cloud prices again , even on its fastest processing systems.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs