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User Info The United States of SCAmazon; entered at 2017-10-29 08:56:39
Posts: 1
Registered: 2017-10-29
A few points, with the caveat that I agree that AMZN's valuation is an absolute joke for multiple reasons:

"Cost of sales" is specifically defined in the 10-Q as "the purchase price of consumer products, digital media content costs where we record revenue gross, including Prime Video and Prime Music, packaging supplies, sortation and delivery center and related equipment costs, and inbound and outbound shipping costs, including where we are the transportation service provider. The increase in cost of sales in absolute dollars in Q3 2017 and for the nine months ended September 30, 2017, compared to the comparable prior year periods, is primarily due to increased product and shipping costs resulting from increased sales."

So if they're spending billions of dollars a year to create original content for "Prime Video" (which is mostly free with a Prime membership) I assume that's in there with no offsetting revenue.

Bigger picture, from an investment standpoint you can't short this based on the idea that the government will make them raise prices, or you're "Bill Ackman -HLF, Part 2." So yeah, AMZN's valuation is a joke and when the market crashes it will crash hard, but I wouldn't short it without a company-related catalyst and that isn't it. I mean, look at it this way: if the government forced it to raise prices it would lose LESS money! Also, what if in COGS is Alexa units, Kindles, tablets, etc. that it sells below cost in order to get them into peoples' homes, hoping it'll pay off in more business later?

To me the most interesting bear argument on AMZN is the bull argument that "Amazon loses money because it's spending for growth, and it could stop doing that at any time and turn on the profit switch." Well okay, let's say it cut TTM capex from $9 billion to $4.5 billion and 75% of that (assuming a 25% tax rate) falls to the bottom line. In that case earnings go from, say, $4/share to $11/share and now you've got a SLOW-growing company with a PE of 100!

But for all its nonsense, Amazon is basically self-financing through internally generated cash flow, and without being at the mercy of the capital markets and simultaneously having massive top-line growth, it becomes a tough short without an overall market correction.
2017-10-29 08:56:39