So here’s the thing about Amazon.com (AMZN): the stock trades at a significant premium to its peers, no matter how you define them. Retailers. Online retailers. Internet stocks. Amazon shares trade at a higher multiple than all of them. The valuation issue troubles Susquehanna Financial analyst Marianne Wolk, who today launched coverage of the company with a Neutral rating.
“Its valuation is so high that it dwarfs all the other positives in the story at this time,” she wrote in a research note. And she adds that with 35%-40% of its revenue and 40%-50% of its annual earnings generated in Q4 - and about 60% of that derived from discretionary media, i.e., books, DVDs and video games - “there is an above-average risk of multiple compression if the holiday season proves more vulnerable to a challenging economy.”
Wolk notes that the company trades for 23x pro forma 2008 EPS estimates on an ex-cash basis, a 40% premium to the high end of its peer group; she notes that on the same basis NILE trades for 18x, and GOOG for 15x. She also notes that the company’s core book business, which is about 35% of revenue, “faces cyclical and secular pressures.” She says the recession could trigger a decline in the number of books purchase per user each year on the site.
Concludes Wolk: “AMZN is likely to be very susceptible to even small variations in results.”
AMZN Monday was off $.75, or 1.5%, to $48.46.
