Netflix, Linked In, and Amazon are trading at a whopping more than 700 times their earnings, and the highest profit margin between them is Linked In at 2.22%. Amazon and Netflix trading under one half of one percent.
All three companies are earning arguably nothing, trading over 15 times book value, and are essentially tech stocks with a very uncertain future no matter who's making the argument.
You can research whatever facts you want but I am a fundamentals-concerned investor and the fundamentals on these stocks are missing. Period. I don't care about the quarterly subscriber growth or the fact that colleges are teaching social media 101 or Linked In 201 or that Amazon might ship same day. I don't care if Mr. and Mrs. Obama are using Linked In nor if Hulu lost a subscriber to Netflix, it's all noise.
You pick your noise I'll pick mine. I'm interested in the most fundamental fact associated with the reason behind business and the reason behind the stock market and the reason behind the whole economy: PROFIT. Where are these companies accountability? They stuff would-be investors with a bunch of technical goo gah about their lack of success but at the end of the day it's just an excuse.
AMAZON AND NETFLIX ARE ANTIQUES despite the nubile self-image they quietly promote. These companies are not new and they are in a fully developed digital age, I don't want to hear excuses that bar profit--no not at this stage of the game. The web allows for people to distracted by a lot of fancy claims but I like to stick to brass tacks.
Netflix continues to add subscribers as if the big picture of selling a profitable service doesn't matter. Netflix has been around forever and they're now trying to diversify and become an entertainment origination service, but they don't have the margins to go fishing when their market cap is 60 times their petty operating cash flow of 22 million.
Linked In, a glorified beta website with some intense marketing finesse clinging to the heart strings of "businessmen" who are "too mature" for Facebook, seems to be unrighteously encroaching on FedEx's market cap. Nothing could be more ridiculous.
As great as this company's PR department is, this is the kind of company that disappears overnight when something better so easily comes along, and it always seems to be easy on the web.
Linked In definitely doesn't have the same strength of footing that its social networking cohort Facebook has but it trades at about four times the book value that Facebook trades at comparatively. Where else could this company go but ultimately downhill? Do you really think logically that it could be worth 75% of Fedex or 10% of Walmart?
And finally, Amazon has been dominating the world of online sales since online sales became a reality, they have everything going for them from venture capital to having UPS in their back pocket, to replacing their human staff to robot staff where applicable, to massive scalable infrastructure, to getting anything they want, to promoting the best image they could, all the way to the exorbitant fees charged to their sellers (and I have experienced those fees as a former Amazon seller who paid Amazon close to 10 million in fees in the past two years), and they still haven't managed to turn a profit and it's now 2013!!! I feel when 2020 comes along Amazon's still going to be feeding us a story. They just want to live. I don't blame them.
But the "we're building up to it" excuse is definitely getting old and the time they do build up to make a profit, we'll be shopping on Google Glass. I shorted Amazon before market close today and a few hours later collected 5% in after hours trading after the dim earnings report that I of course expected.
I don't believe Amazon, Netflix, or Linked In will experience a massive decline anytime soon. The stock isn't controlled by reality right now but by speculatory fantasy. And until that fantasy is sold short we could have a problem.
Disclosure: I am short NFLX, LNKD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I want to disclose that I don't have any securities licenses and that I would be considered a staunch amateur by the industry. But I also don't make you rely on my thinking. I just bring obvious facts to the table such as the companies' earnings which can be forgotten in search for "greater meaning". As I say in the article, I already completed round 1 of my Amazon short making 5% on its post-earnings descent that I believe was obvious. I am currently holding three shorts in my entire portfolio: Netflix, Linked In, and Harley Davidson. I'm always hoping for a quick return but I am prepared to wait it out indefinitely on all three shorts. I will not sell any of them in the red. I believe most strongly in Linked In's over evaluation. Out of all the stocks I recommend to short, I believe Netflix has the most potential to grow and Linked In is the most overvalued.