Amazon Stock: Is AMZN a Bubble Ready to Burst?

Posted On August 4, 2017 5:31 pm

A series of iPhones with Amazon on each screen

Amazon.com, Inc. (NASDAQ:AMZN) has gained over 30% since the start of this year. Amazon stock crossed the $1,000 mark, and there is no end in sight to the growth amid Amazon’s increasing dominance in the ecommerce, Cloud and content. But analysts have now started hinting an imminent Amazon crash, as the market is all set to correct itself.

Amazon’s implied PE multiple of 190X is absurd, to say the least. Amazon.com, Inc. (NASDAQ:AMZN) earns over 90% of its revenue from moving, storing and delivering products, a sector which has a growth rate of just 2.2% annually. Amazon’s valuation isn’t justified. The company has a market cap of $474.1 billion. Amazon.com, Inc. (NASDAQ:AMZN)’s revenue in the first quarter grew just by 22.6%. Amazon’s profit margins are also depleting. This shows that Amazon stock is becoming a bubble.

In the second quarter, Amazon.com, Inc. (NASDAQ:AMZN) expenses growth surpassed its revenue, and EPS dropped by a whopping 75% to $0.40, versus the consensus estimate of $1.42. Revenue in the period came in at $38 billion, versus the consensus estimate of $37.18 billion. But Amazon’s stock wasn’t punished for the weak second quarter results, as the company has disconnected itself from the fundamentals on the back of fancy growth promises and dominance chatter.

Related: Here’s Why You Shouldn’t Buy Netflix Stock

On year-over-year basis, Amazon profits in North America dropped to $436 million from $702 million, while International loss soared to a whopping $724 million from $135 million.

The market isn’t giving importance to two of the biggest competitors of Amazon.com, Inc. (NASDAQ:AMZN), which will become a major threat to the ecommerce company. The first is Walmart, which reported a strong online sales growth of a whopping 63% in the fiscal first quarter of 2018. Walmart has a solid growth potential and with a strong network of brick-and-mortar stores, it can leverage massive opportunities in the groceries and home improvement business.

Microsoft is the other company which is giving Amazon tough competition. Microsoft Azure Cloud platform revenue increased by 98% at constant currency basis in the fourth quarter. Margins of “Intelligent Cloud” business arm, of which Azure is a vital part, increased by 8% in the fourth quarter, while revenue of the segment was $7.4 billion in the June quarter. On the other hand, Amazon.com, Inc. (NASDAQ:AMZN) Web Services revenue generated a revenue of $4.1 billion in the same period. Amazon Cloud is currently dominating the market, but it has no growth.  

Related: Why Apple Investors Shouldn’t Be Overly Optimistic


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