$AMZN : An Amazing Short

Is this another bubble collapsing?

Disclosure : I have a small short via ITM puts.
Recently a friend of mine mentioned AMZN on one of my facebook post about AAPL. I do not trade stocks much and I am certainly not an stock analyst nor do I “trade” on longer term views. However the conversation made me do a very basic research on AMZN. In short this is what I find:
  • AMZN annual revenue growth is about 40% per year based on last 3 years. On trailing 4 quarters basis it has flat lined and annual revenue growth rate is expected to be 20%-25%year on year. i.e. TOP LINE is not growing as fast as people expect(ed).
  • AMZN net profits after all mumbo jumbo are flat to declining for last 3 years. On trailing 4 quarters basis, they are declining. i.e. BOTTOM LINE is under pressure.
  • On trailing 12 months basis, the shares are trading on an amazing 2500+ PE. Even on Forward Earning estimate basis the shares are trading on 100+ PE.
Source Yahoo Finance

Now, even if we believe that one day AMZN will dominate the world retail market and every thing every where would be sold and supplied by Amazon eventually – a total world dominance – the day has not yet come. Now given that utopian steady state, how would you value AMZN? It would be like a giant retailor so may be 10 – 15 times earnings? If you have a 5 year view for that to happen on current prices you are expecting the earnings to grow 10 times from their Forward Earning Estimate (or 250 if you consider trailing 12 month earning). That implies a annual earning growth rate of 80% per year (and if you rather believe in trailing 12 month numbers it is 200% annual growth).
Now can this happen? Well pigs can fly too but even if that were to happen, what you are saying is that current price prices in the above happening over 5 year period.
Now imagine if this weren't to happen? And to give the benefit of doubt to continuing growth story lets assume AMZN still trades on 40 times earning after 5 years(four times what I assumed in my steady state model). And lets us assume that the earnings grow in line with revenue at 30% per year – again a rich assumption. Even such rich assumptions indicates that the fair value of the shares is at about 141 – 156 on forward earning estimate.
These more or less ties in with my chart analysis that 219-212 is first support followed by 150-178.
And what if forward earning estimates are too rich and AMZN does not deliver on those Open-mouthed smile… well look for shares trading back to 30-50 range!!!