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Amazon.com, Inc.
Re: The Stock Would Trade Around 22

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By amznanalyst
March 29, 2004

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I guess that's the bear's version of proforma. But if you want to include income tax because Amazon will start paying them within the next several years, how about excluding the interest payments ($130m in 2003) which Amazon will stop making within a similar time frame as Amazon has been rapidly retiring debt well ahead of schedule.

Now, even then you would still say Amazon is too expensive. But when has Amazon ever not been expensive? And when has Amazon ever been cheaper relative to it's earnings outlook than today? In spite of it having risen so much since hitting it's low around 5.50 two and half years ago, I believe this is actually the cheapest it's ever been relative to the earnings estimates. So being expensive is hardly a reason to short.

In fact shorting a stock because it's expensive is generally not a good idea. You may be right that at some point it will stop being expensive, but by the time it's no longer expensive, the earnings may justify a stock price significantly higher than where you shorted. When a company's earnings (and free cash flow) is growing as rapidly as Amazon's, a short is running out of time. Your only hope is a reversal of fortunes for the company. Something which may or may not happen within the timeframe you need to make your short profitable.

There's an analyst who has been consistently bearish on Amazon. His name is Mark Rowen, of Prudential. He's had a sell rating on Amazon for as long as I can remember. A couple of years ago when Amazon was trading in the low teens, he had a sell recommendation with a price target of $10. A year ago when Amazon was in the 20's, he raised his price target to $15 but maintained his sell recommendation. This year he raised his price target to $30 and of course maintained his sell recommendation. To him Amazon has always appeared overvalued and on that point he may be right. But considering he thinks it's worth $30 today, he most certainly was wrong to recommend selling two years ago when Amazon was in the low teens.

And let me end by pointing out that at the beginning of 2002, the average analyst estimate for 2002 was about -$0.35. The estimates were raised every quarter and actual reported results for 2002 was $0.17. At the beginning of 2003, the average analyst estimate was $0.24. The estimates were raised every quarter and actual reported results for 2003 was $0.60. At the beginning of 2004, the average analyst estimate was $0.89. It's at $0.96 right now. So I wouldn't presume actual reported results for 2004 will remain at $0.96.


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