Once in a while, out of curiosity, I check the metrics on various companies. Today I decided to fly by Amazon.com Inc. (NASDAQ: AMZN) given yesterday's upbeat earnings report. But despite all the good news, what did I find? Simple, the numbers stink! To paraphrase Shakespeare: A dog by any other name... would still smell.
What in the world is going on in the minds of investors that would bid up this company to a valuation over $22 billion and a trailing P/E ratio double that of Google Inc. (NASDAQ: GOOG)? As I write this post AMZN shares are above $56, up over 25%, adding $11.50 to yesterday's price.
The following is an excerpt from the earnings' release:
- Net income increased 115% to $111 million in the first quarter, or $0.26 per diluted share, compared with net income of $51 million, or $0.12 per diluted share in first quarter 2006. First quarter 2007 effective tax rate was 23% compared with an effective tax rate of 47% in first quarter 2006.
If Amazon continues to perform well this year, perhaps it will earn around a buck, meaning its P/E ratio going forward is still above 50.
And that's just the beginning. So many other things blew me away like Amazon's Price-to-Book ratio is 41.19, compared with Google's 8.65, Yahoo (NASDAQ: YHOO)'s 4.75, and eBay (NASDAQ: EBAY)'s 4.49. Amazon's P/B is sky high and being bid up even higher this morning!
The only strong number when examining Amazon's fundamentals is the price-to-sales ratio 1.68. Yet, despite the price-to-sales ratio being very low, the number is deceiving as Amazon is running so many other third party companies' sales through its site that it is distorting the top-line sales figure.
Looking at another standout ratio, Long-term-debt-to-equity, I found that AMZN = 3.0, compared to GOOG = 0.0, YHOO = 0.1, and EBAY = 0.0. The other major internet companies have no debt while Amazon still has a lot of it. This will weigh even heavier on the company should the economy slow down.
Like other major retailers, Amazon has very tight profit margins -- but Google's profit margin is about 30%. For most of the last eight years (with a few exceptions), I have felt that Amazon.com was overpriced and I still think so.
Disclosure: I do not hold any position in the companies discussed. For those interested in value investing check out Chasing Value and Serious Money.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
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Reader Comments (Page 1 of 1)
4-25-2007 @ 2:45PM
Isaac said...
I've been investing in AMZN since its IPO and I've been reading these "doom and gloom" articles since that time as well. Many of the early ones saying that AMZN was not going to work, was going to fail miserably, etc. I'm glad I never listened to these doom and gloomers and I have no intention of starting to do so now (although this is probably one of the more mild articles I've read, but still just more of the same...)
4-25-2007 @ 3:37PM
Sheldon L said...
OK Isaac, I get it, your in for the long haul - But what would you pay today? Would you pay $56 per share? Todays' run-up is nuts...and thanks for being gentle with me ;-)
4-25-2007 @ 3:43PM
crystal ball said...
I know why Amazon is kicking Ebay's *ss. When you go to the American Ebay, its page after page many times of the same item from around the world. The American buyer is forced to weed through the items to see who ships from the United States. They do this because they want thier item shipped faster and they dont want to pay overseas shipping costs. On Amazon you dont have to weed and leave the site in frustration and confusion like Ebay.
4-25-2007 @ 5:17PM
Isaac said...
Wow, thanks for responding to my comment Sheldon! That's a hard question to answer about what I would pay for a share today. I think Amazon is an experiment of sorts. If it works, it could be much bigger than Wal Mart. If it doesn't work, or only partially works, than yea, it will be a let down and the shares are probably over-priced. Because it is an experiment, I don't think Amazon can be measured by the usual yardsticks you guys use. I remember early on, an analysis wrote something like, "Amazon would have to sell every book in the world to be worth its current valuation...". (that was back when Amazon was just selling books, or book and a few other things) I remember thinking, "wow, she just doesn't get it." I definately wouldn't put my entire retirement into AMZN though :)
4-25-2007 @ 7:36PM
dorothy said...
For every $1 of Amazon revenue it makes .03 cents. For every $1 of Ebay revenue it makes 0.26.
Amazon Q1
Net Profit of $111 million on total sales of $3.02 billion
PE on 2008 earnings = 48X
Ebay Q1
Net profit of $460 million on total sales of $1.77 billion
PE- 21x
4-29-2007 @ 6:11PM
marc said...
I don't think Amazon can be measured by the usual yardsticks you guys use. This is exactly what they said in 1999. Does anyone truly still believe that companies cant be valued using traditional metrics? I thought the tech bubble bust put this rationale to rest. I shorted AMZN (unfortunately) at $52, so i lost money last week. I have my stop in if i get taken out so be it. otherwise, I am holding this sucker all year if I have to. I know others who were short at 45 pre-earnings, i feel for them. AMZN is a good company, but anyone and i mean anyone, e.g. go to Walmart.com can do the same thing that they do.