Holding onto a stock like Amazon (AMZN), which trades for 350 times earnings when the entire market goes for 15 times earnings, would never be easy. Doing so even while its earnings implode for two years straight and that same market shows earnings growth, makes the feat even harder.
Now, to achieve a feat like the one I described, one needs to believe things that are ever more fantastic, for instance:
- One needs to believe that large earnings are just around the corner, and do so for two years straight in the face of lower earnings;
- One needs to believe that it's all for the longer term profitability, even while the estimates for such profitability are at the same time reduced, and pushed forward;
- One needs to believe that the same analysts which were forced to reduce estimates by 80% in the last two years, will be right in the next 3-4 years and the profits' bonanza will arrive;
- And among many other things, one needs to believe that having to collect sales taxes where previously it didn't, even though these will represent higher sales prices by 6-9%, would present no impact to revenues or earnings.
Maintaining these beliefs has been assaulted by regular quarterly earnings reports showing lower and lower earnings, and even worse guidance. It has been assaulted by subjective reports of customers piling up their orders to beat the tax collection. Today, though, something changed.
Hidden in the bowels
Today, we got a piece of news which straight out requires denial by long holders of Amazon. Hidden in the bowels of a WSJ article proclaiming Best Buy (BBY) will match online sales prices, we get this:
Sales at Best Buy's Texas stores improved this summer after Amazon began charging sales tax in that state, according to a person familiar with the situation.
So there you have it. We now know that sales taxes are having an impact. They're having enough impact that even a competitor who was shriveling from the online sales bonanza is now seeing improved sales where Amazon started collecting sales taxes. And Amazon started collecting sales taxes not only in Texas, but also in California from September 15.
Since Amazon is priced to perfection, with a multiple 20 times higher than the market's and wholly reliant on keeping its fast revenue growth, any impact from collecting sales taxes, be it on revenue growth or through even lousier earnings, is surely not in the share price.
And yet, at this point to believe there is no impact is to believe either the WSJ or its sources are lying. Which most likely they aren't.
If ever this impact is recognized by Amazon or shows up in its earnings or guidance, it's likely that Amazon will see a huge repricing of its earnings multiple and growth prospects. At the level its earnings multiple sits today, this can easily mean Amazon trading at less than half its present quote (or even significantly worse than that). Amazon reports on October 25, so we could be days away from this realization.
Disclosure: I am short AMZN.