Here are Doug Kass' top thoughts on some of the biggest stories of the week.
Dillard's Keeps Delighting
- Takeaways and Observations; Church of What Is Working Now: Doug Kass' Views
- A Twitter Buyout Is Only One Reason to Hold Onto the Stock, Doug Kass Says
I saw little that looked encouraging in the second-quarter report that Amazon (AMZN) released after the bell Thursday. While I'm mindful of the stock's "cult status," all of the fundamentals and valuation figures that I'm seeing point to selling the stock.
- Best Buy Has No Reason to Exist in the Age of Amazon, This Analyst Explains
- How Amazon Billionaire Jeff Bezos Gained Vast Riches and a Tech Giant Someday Worth $1 Trillion
- While North American e-commerce sales accelerated 26.5%, Amazon Web Services saw its gains slow to 42%. After all, the cloud sector is beginning to get crowded thanks to Alphabet (GOOG) , (GOOGL) , Microsoft (MSFT) and others.
- Amazon Web Services saw its EBITD margin decline quarter over quarter, something that probably won't please tech investors (who normally disdain margin compression).
- AMZN's total sales rose $7.5 billion in the quarter, but EBITD only added $118 million. This is a 1.6% conversion of incremental revenue to EBITD, which would be a monumental disaster for any business except this one.
- AMZN sells at about 212x EPS. That's a big number for a $500 billion-or-so company.
- The EBITD multiple is 37x.
- Amazon builds things, but doesn't generate an economic profit. AMZN's free cash flow isn't growing, either.
- Interest grew 8% sequentially, while pretax declined 44%.
- Amazon paid a heavy tax rate, but earnings per share were down 78%.
- The company has 492 million shares outstanding and a market value of about $500 billion. However, AMZN has $14 billion of net cash. That leads to a roughly $486 billion enterprise value.
Beyond my concerns with Thursday's earnings report, I see secular challenges for Amazon as well. For example:
- Amazon is facing an existential antitrust threat. The company is (finally) attracting some media and political attention for its business practices.
- AMZN is currently disrupting the auto-parts and appliances businesses, and it has big plans for food retailing. The company might very well have too many opportunities -- or perhaps it's creating a massive smokescreen, using profit generation to mask underlying business problems.
- Third-party sellers are avoiding taxes on the Amazon platform.
- AMZN is attracting a sizable stable of enemies.
- Old-line retailers like Walmart (WMT) and Best Buy (BBY) have proven that they can compete against the company.
- The market rotation away from the FANG stocks might have already begun.
The Bottom Line
As I expressed in my recent column Buying Into Retail Seems Like Best Bet Amid Latest Sector Rotation, I'm on the side of the underdogs when it comes to Amazon. To me, it looks like Amazon's best days as an investment might be behind it.
- How biotech is having sharp reversals
- How crude is surging
Click here for information on RealMoney, where you can see all the blogs, including Doug Kass'--and reader comments--in real time.
Don't Miss These Weekend Reads on TheStreet: