When the dot.com bubbles burst in March 2000, it did feel as if Amazon got a get-out-of-jail-free card. Why is this company such a darling? How does it make money by giving aways its profits in massive discounts? Is the Kindle on its way to becoming the world’s most famous shelf-ware? How long can it go on defying gravity? And, the answer to that question seems, “Forever.”It appears as if no one was willing to say, “The Emperor has no clothes.” Andy M Zaky, a contributor to Fortune, writes: ‘The online retailer's shares are valued at more than three times Apple's and more than two times Google's. And there's no reason why.’
He continues: ‘Whenever a stock can potentially drop 50% and still be considered overvalued, that's when you know the stock is a bubble. Amazon (AMZN) far surpassed bubble territory ages ago but investors still continue to plunge billions of dollars into the company. If the stock were to crash to $80 a share today from $164, it would still be trading at a significantly richer valuation than Google (GOOG), Apple (AAPL) or even Research in Motion (RIMM).”
Zaky doesn’t think it makes any sense, considering that both Amazon’s top (growth) and bottom line (profits) have underperformed compared to Apple, Google and RIM. ‘A company can always reduce costs and improve margins to move more of its revenue to the bottom line, but the hard part is actually producing, marketing and selling a product that people want to buy,’ he says. In other words, business is still about business.
‘When RIM was trading at $150 a share, sophisticated investors knew the stock was a bubble. This case is no different. There is no matter of 'if' in this analysis. It's a matter of 'when.' Amazon will lose 50% of its value over the coming years. At $150-$160 a share, investors are flirting with financial suicide,’ he concludes.
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