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  • techstrategy techstrategy Jan 25, 2013 10:02 PM Flag

    EPS of 8 pennies. p/e of 3,900. A POS but the thieves luv it!

    Because a PE of 100 makes sense for a $100B+ market cap company. What is the cash flow yield? Were it to pay a dividend (it cannot), what would the yield be?

    This is simply a greater fool play. They never end well...

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    • Well said. Compare the excessive AMZN valuation to companies like CRUS, which actually has profits - EPS in the 99 percentile range, margins of around 50%, PE ratio of 10 and in spite of having beaten earnings estimate consistently for the last 10 quarters, is selling at 35% below its all-time high. The markets make absolutely no sense to me. Logic has no place in the jungle we call "Wall Street".

    • Indeed it is a greater fool play. And 100 pe is still high but it highlights the limitations of pe analysis on this company. It could get to 40-50 or be much higher depending on how they manage their margins. Cash flow yield should follow earnings but in their case it never seems to do that. But cash flow has increased. I am negative on the company's valuation but find it amusing how people use pe as a basis to judge it. I think measuring the sales growth will be the key area to look at to determine when this folly ends.

      • 2 Replies to pricewowens
      • Actually, no it cannot get to 40 or 50 depending on how they manage their margins. True FCF has not increased materially. Most of the growth in cash has been from increased revenues on the negative working capital model, but that is not true FCF (as that cash has claims on it). Should the revenue ever fail to grow as rapidly, that FCF would decline rapidly. Once the stock price stops going parabolic, compensation structure will have to skew toward cash to retain talent and will serve as a drag. Vicious circle...

        But wait, there's more... Google Shopping is an inherently superior model that better aligns with existing retail incentives. It needs deeper transaction integration, but will get it. After all, Google does have $50B in cash and $15B in FCF a year to invest in making it happen.

      • Price:

        Thread got to long, so I am responding to an earlier post. The switch to negative working capital is not a one time increase in free cash flow. Changes in working capital are NOT true FCF. Bezos and the analyst community are misrepresenting it as such. That capital has to be paid to vendors. It is working the float and had, in the past, been helpful in financing growth. But, Amazon's collapsing cash true cash flow meant that it had to raise debt to finance its capital intensive malinvestment. That should have been a big flag for longs...

        Just as NFLX accelerated the death of its cash flow generating DVD business, time will prove out that AMZN has destroyed TRUE FCF through overly aggressive category expansion and the acceleration of 3P/FBA. But, that requires a more detailed analysis of the cost and profit drivers in the business model.

        There is a reason for the migration in Amazon's business model, just as there was for NFLX... The holiday season will be as good as it gets. From here on, it is all downhill....

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