Amazon's a Sell - AmTech Research

American Technology Research's Tim Boyd is out with a controversial 'sell' call on Amazon (AMZN) today, based on expected weakness from the U.S. consumer, valuation and pressure from eBay (EBAY). Excerpts from the note:

AMZN (Initiate with a SELL): World's Greatest Retailer, But Still Just A Retailer – We Are Sellers of the Stock at Current Levels.

Despite our expectations for outstanding 4Q07 results, we believe that the tremendous uncertainty surrounding the state of the U.S. consumer will force AMZN to provide very conservative 2008 guidance. We do not believe that AMZN's 54x 2008 P/E reflects this possibility.

In addition, EBAY is getting ready to strike back competitively, and that may force AMZN to ramp its 2008 Marketing and Tech & Content spending more than the market anticipates. We also think AMZN may have to factor the possibility of some third-party seller reductions into its guidance.

Lastly, although we expect cash operating margins to rise in 2008, we believe the rate of improvement will slow substantially. In this report we provide a detailed analysis of the company's operating leverage. Let us be clear - AMZN is a must-own stock for the long-term.

In our view, AMZN is on its way to becoming a $100 billion company by the middle of the next decade at the latest. We simply believe that a much better entry point is on the way.

Our $69 price target is 28x our 2009 non-GAAP EPS estimate of $2.50 and 13x our 2009 EBITDA per share estimate of $4.60 (adjusting for $7 in estimated YE09 cash per share).

Comments

[QQQQ]

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[Long-ShortGuy]

This is a smart call, because sentiment on AMZN is at an all time high. For example, this article:

www.nytimes.com/2008/0...

Here's the opening -- sentiment watchers take note:

My Christmas story — the one I've been telling and retelling these last 10 days — began on Friday, Dec. 21.

It was early in the morning, and I had awoken with the sudden, sinking realization that a present I had bought for one of my sons hadn't yet arrived. It wasn't just any present either; it was a PlayStation 3, a $500 item, and a gift, I happened to know from my sources, that he was hoping for.

Like most things I buy online, the PlayStation had come from Amazon.com. So I went to the site and tracked the package — something, thankfully, that is a snap to do on Amazon. What I saw made my heart sink: the package had not only been shipped, it had been delivered to my apartment building days earlier and signed for by one of my neighbors. I knocked on my neighbor's door, and asked if she still had the PlayStation. No, she said; after signing for it, she had put it downstairs in the hallway.

Now I was nearly distraught. In all likelihood, the reason I hadn't seen the package earlier in the week is because it had been stolen, probably by someone delivering something else to the building. Even if that wasn't the case, the one thing I knew for sure was that it was gone — for which I could hardly blame Amazon.

Nonetheless, I got on the phone with an Amazon customer service representative, and explained what had happened: the PlayStation had been shipped, delivered and signed for. It just didn't wind up in my hands. Would Amazon send me a replacement? In my heart of hearts, I knew I didn't have a leg to stand on. I was pleading for mercy.

I shudder to think how this entreaty would have gone over at, say, Apple, where customer service is an oxymoron. But the Amazon customer service guy didn't blink. After assuring himself that I had never actually touched or seen the PlayStation, he had a replacement on the way before the day was out. It arrived on Christmas Eve. Amazon didn't even charge me for the shipping. My son was very happy. So, of course, was I...