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'Amazon's biggest problem right now,' according to valuation expert Damodaran

Aarthi Swaminathan
Finance Writer

Amazon (AMZN) has bigger problems than competition from Walmart and the retail industry, says Stern School of Business at New York University Professor Aswath Damodaran.

“I think Amazon's biggest problem right now is it has a target on its back. Target on its back politically, economically,” Damodaran told Yahoo Finance’s The Final Round, several days after the e-commerce giant decided not to build a second headquarters in New York City amid fierce opposition from local advocates.

“Everybody wants to take Amazon down,” he added. “And that's a dangerous place for a company to be when everybody wants to take you down.”

That could mean more regulations and laws that could curb Amazon’s influence, Damodaran added. Overall, according to the corporate finance expert, “you're going to see people squeeze Amazon in every conceivable way.”

Jeff Bezos, founder and chief executive officer of Amazon.com Inc., speaks during a discussion at the Air Force Association's Air, Space and Cyber Conference in National Harbor, Maryland, U.S., on Wednesday, Sept. 19, 2018. Andrew Harrer/Bloomberg via Getty Images

‘I don't even think Amazon is particularly a retail company anymore’

The concerns about competition in the retail space were raised on the back of Walmart’s stellar performance this week, which was driven by a 43% year-on-year increase in e-commerce sales.

"Progress on initiatives to accelerate growth, along with a favorable economic environment, helped us deliver strong comp sales and gain market share,” Walmart CEO Doug McMillon said in a statement.

Prior to Walmart’s stellar earnings, former Apple retail store chief and J.C. Penney CEO Ron Johnson told Yahoo Finance that Amazon should have trouble “sleeping at night.”

“I mean, seriously. Amazon same-store sales in the U.S. are now single-digit,” Johnson said. “Target and Walmart, these big retailers have learned how to leverage their stores’ inventory to create a better shopping experience. That’s where customers are going right now.”

But Damodaran downplayed the concerns over Walmart: “I didn't see the Walmart story as being negative for Amazon. To be quite honest, I don't even think Amazon is particularly a retail company anymore. I think it's a disruption platform.”

Amazon makes money in a lot of ways. (Graphic: David Foster/Yahoo Finance)

Amazon’s pricing ‘has always bothered me’

Damodaran also added that Amazon’s stock price is “priced so richly, and that's what always troubled me.”

“People assume perfection with Amazon [and] anything less than perfection is a problem,” Damodaran explained. “So from that perspective, but maybe expectations have come down maybe that would bring the prices to a more reasonable level.”

Yet, at this point, the stock was too low to short.

Looking at valuations, Amazon is “a company which can overshoot in both directions and distribution of value is huge,” said Damodaran, so “your estimate is always going to have a wide range on it of about $1,250 for it.”

“[At] $1,632, I would just say I wouldn't touch the stock,” he said, referring to the stock’s price during his show appearance. “But I'm not selling short at $1,632.”

There was such an opportunity, added Damodaran, in September 2018 “where it was trading at almost at $2,000.”

Amazon shares ended at $2,039 on September 4, 2018. The stock briefly joined fellow tech giant Apple as the second public company to hit the $1 trillion mark when it hit the milestone level at $2,050.2677.

(Graphic:Yahoo Finance)

Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.

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