AMZN Puts (DD)

by ryngo14

The stock is a bubble. AMZN missed earnings last two quarters, attributed to one-day shipping costs. This is just a hand-wavy explanation by people who are blind to the real issues the company is facing:

  • Amazon’s size is a weakness, not a strength
  • Costs are going up because the company is over-extended in it’s growth pursuits and the infrastructure/workforce is inefficient
  • As far as online retail, employee churn in the FCs is debilitating. From level one associates up to operations management, Amazon is struggling to attract and retain talent. Near me, FCs are paying $19/hour starting wage for season TIER ONE associates (temps) in preparation for their peak season, as well as offering existing employees a $500 referral bonus if they get someone to apply. (Subjectively, I’d wager nearly half of those new hires are gone within the first two weeks, meaning recruiting/training costs are sunk too)
  • Amazon’s reputation as an employer means it is attracting less and less competent management for roles in what is becoming a more and more complex global supply chain system. What’s more, companies that grow like Amazon did eventually struggle with a transition from a culture that values singular, visionary leaders that practice independent, decisive problem solving, to a culture that is too bureaucratic, bloated, and “committee-driven” to unite behind any winning strategies. So when a business critical problem like ODS costs comes along, the beast is far too sluggish to react.
  • Nike leaving was a consequence of the company’s ineptness. Counterfeit goods are rampant; the website is becoming a flea market for Chinese garbage. Other big companies will begin to lose faith in Amazon. Even if they address this issue aggressively, it’s just another factor that drives costs up.
  • Whether you think there’s going to be a recession or not, a lot of capital from funds and millionaires is going to be leaving the market, and Amazon is a favorite for these investors as a high-value, reliable blue-chip.
  • Additionally, factor in market uncertainty from the Trump’s impeachment, the trade war, the election. Both Trump and the Democratic candidates have talked about Amazon being too big, antitrust measures, etc. Politicians on both sides of the aisle HATE bezos and his fucking company.
  • Way over-extended. Opened 3 FCs in the last year in my state alone, only to find no one wants to work in them? Leasing million square ft. buildings that are 50% empty space?
  • AWS growth slowing. Still seems like a major money-maker except a company that trades 79 P/E and 15 P/B can’t afford to stop growing. So much of the share price’s value derives from the market’s future expectations, so what happens when it becomes clear the company is hitting a wall? The price will correct to match more realistic expectations.
  • Black Friday/Cyber Monday are later this year. This means Amazon has a contracted three-week period before xmas to deliver on absurd volumes WITH the added costs from one day-shipping.

My prediction: Amazon misses earnings for a third time in Q4, finally clueing investors in that the company is not a resilient as it seemed. Growth slows because the company is too big to sustain it. The uncertainty of it’s opportunities is overwhelmed by the certainty of it’s threats.

I have 1550 puts expiring 2/21/20

 

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.

626 views