I would like to introduce a meme before the sell side or buy side catches on. As you know AMZN was up 100% this year as Bezos revealed the AWS business to the world. The meme is this: AWS growth is unsustainable. Not only is it unsustainable I predict that the sell side forward revenue growth rate for AWS will go to zero or negative by Christmas next year. It has come to my attention that 50% of AWS growth comes from start ups and my guess is that the majority of those dollars are Unicorns. AMZN has been an indirect beneficiary of QE largess. The Fed’s easy money created a bubble in VC funded start ups. That funding peaked this year and is now in decline as the Unicorn bubble is bursting. I expect this bubble to unravel fast as we are in the part of the cycle where the capital markets shut down for companies burning cash.
This set up reminds me of the easy money days of 1998-2000. Then the investment world thought it was a good idea to fund a multitude of new telephone companies (CLECs). These companies all rushed out and bought telecom equipment and helped to propel the stocks of Cisco, Nortel and Lucent. These arms merchants were the must own large cap stocks of 1999 and 2000. About 50% of their revenues came from the CLECs towards the end of the cycle. The CLECs went away when the capital markets shut down and with it the revenues for these arms merchants went the way of the Dodo bird.
The problem for Amazon is that the Fortune 500 are not putting large portions of their business on the cloud yet nor will they soon. Therefore there will be a big growth chasm that AMZN needs to cross. I suspect the $150 billion in market cap being assigned to AWS is not anticipating such a growth hiccup. Additionally, I question how profitable this whole business is in the first place but for now lets just focus on the fact that revenues in the AWS division will roll over this year. I am not short the stock but I will be stalking this and I predict my meme will come true and that AMZN will be one of the worst performing large cap growth stocks next year.
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Didn’t you post a similar yet more thorough article about Amazon a year or so ago? That must have been at least 120% ago? If you are not the one who wrote that article, please forgive me. I do enjoy your posts very much.
Going to be a hell of a short eventually.
“The problem for Amazon is that the Fortune 500 are not putting large portions of their business on the cloud yet”
That’s what Oracle and Siebel said about SFDC and saas in general 8 years ago… You need the insight to see where these companies will go, not where they are today. The onsite data center will migrate to the cloud, just a matter of time.
Microsoft Azure & Google buying their way into IaaS doesn’t bode well for growth or margins.
On Dec 29, tweeted AMZN at $694 was trading for 127 times 2016 estimates, up from a 74 multiple a year ago, based on its earnings estimate at the time.
Closed some of those puts today, letting the rest ride.
What I liked about your post is no fucking charts.
Just terrific logic .
Merci.
IaaS isn’t where the money is. SaaS will eventually take it over and Micro$oft is positioned 10x better than the other players.
Oracle, Amazon, and IBM are the blackberries and galaxies in a market that wants apple – who (dig a little and you’ll find it) uses Microsoft’s cloud already.
Azure in the end game and the real play is MSFT long.
Congrats on the perfect timing as always BlueStar!
You beat ZeroHedge to the punch on their article “Next Big Short”
http://www.zerohedge.com/news/2016-01-01/next-big-short
narwhal,
yes I wrote that article. All those points still apply. However, I covered my short in january immediately after they revealed the cloud stats. technically it looked too strong. My mistake was not getting long for a trade. i had no idea the AWS kaka would take it this high. Having said that this bubble stock is nearing the end and all the stuff I and others have written about will be revealed very soon. The tide is receding.
I’m just so confused on the forward pe of Amazon. This company is trading like it has the market share in its sector like a TSLA when in reality its already quite multinational. Truly a study on the repeated irrationality of masses.