Amazon – Too Expensive!!!! And More So Now!

Amazon (AMZN) reported 3rd quarter results today after the close (Tue Oct 24).  In fact, the conference call which you can listen to live on the internet just ended a couple minutes ago. 

Apparently, the Street liked what it heard as Amazon’s shares are up more than $4 in the after hours to around $38.  I don’t really know why since it strikes me as simply an in line quarter.

At $38, Amazon has an enterprise value of about $16.6 billion.  They had free cash of $366 million in the last 12 months for a trailing EV/FCF ratio above 45.  Assuming optimistically that they can grow that by 25% over the next 12 months that’s still a forward EV/FCF ratio of around 36.  The company’s revenues seem to be growing in the mid 20s percent wise.  I think this multiple is too high.

Compare that to Netflix whose revenues are growing in the high 40s percent wise and whose forward EV/FCF ratio for 2006 – so not even looking out as far as for Amazon – is just above 20. 

I agree that there is more risk involved in Netflix’s business model because of the threat of on demand from cable and the internet.  In contrast, Amazon doesn’t seem to face anything close to a similar competitive threat.

But, as much as I love Amazon, and believe me I am a very good customer, the stock is just too expensive.  I think its a $26 stock.  And I wouldn’t want to buy it anywhere higher than the low $20s. 

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