Where Have We Seen This Movie Before? by Kopin Tan
Summary: Amazon (AMZN) shares are up 74% in less than two months after a huge Q1 earnings beat. Margins are up, and after extended spending on R&D the company now predicts lower capital outlays. Most recently, CEO Jeff Bezos said Amazon will double its investment in China, sending shares up another 3%. Barron's wonders how much of Amazon's good news is already priced into the stock? Heavyweight competitors Google Inc. (GOOG) and eBay Inc. (EBAY) trade for 27x and 20x forward earnings respectively, vs. Amazon's astronomical 57x (and 123x 2006 earnings). While bulls say projected profits are still low, the stock seems priced for earnings perfection; Barron's says it's time to book some profits. Blue Water Asset's Dan Jones also says the runup is overdone; he suggests a put spread, buying July 65s and selling July 60s, to hedge a short-term drop toward $60.
Related Links: What's Driving Amazon's Stock Price? • Amazon: A Case of Irrational Exuberance At Current Valuations • Why Amazon Will Never Really Be Profitable • Bezos: Amazon.com Will Boost China Investment
Conference call transcript: Amazon.com Q1 2007 Earnings Call Transcript