Amazon (AMZN) jumps from $40 to $62

[cbloom]

So, Amazon released a slightly positive earnings report & the stock has jumped From $40 to $60 in a day. Is this the most obvious short ever? This seems like insane irrational exuberance.

(I'll post more details later, just wanted to get this thread started)

ps. I don't know anything about how to short - is there a review here of "put options" and normal shorts and the other ways to go?

[cbloom]

This is a pretty thorough article for example :

http://www.marketwatch.com/news/story/lo...93F0C66A1B2E%7D

The basic problem to me is there are so many people high on Amazon and so many large funds holding it that it may not correct down until some really bad news comes out. I personally believe this is a huge over-valuation, and that the US consumer market which drives Amazon is going to get very weak in the next few years as the subprime market pinches spending power and people don't have all those refis to boost their capital.

[ahnuld]

yes, the subprime mortgage problem is really going to affect peoples spending on big ticket items such as books and movies.

jking obviously. I didnt read the earning report but im sure the jump is justified based on revised long term views. Just saying it doesnt make sense to you for it to jump 50% doesnt cut it. You need to get in there and evaluate why.

[Jeff W]

[ QUOTE ]
The basic problem to me is there are so many people high on Amazon and so many large funds holding it that it may not correct down until some really bad news comes out. I personally believe this is a huge over-valuation...

[/ QUOTE ]

Remember Keynes: "The market can stay irrational longer than you can stay solvent." [img]/images/graemlins/grin.gif[/img]

I agree that 106.1:1 P/E ratio is pretty sick...

[cbloom]

[ QUOTE ]

jking obviously. I didnt read the earning report but im sure the jump is justified based on revised long term views. Just saying it doesnt make sense to you for it to jump 50% doesnt cut it. You need to get in there and evaluate why.

[/ QUOTE ]

Well there's no way I'm going to evaluate better than all the techs, but a lot of smart people (Motley Fool, etc.) have been saying Amazon was over-valued even *before* this jump, and this jump seems to be entirely based on this one earnings announcement, not any real reevaluation of Amazon's long term prospects.

[cbloom]

[ QUOTE ]
[ QUOTE ]
The basic problem to me is there are so many people high on Amazon and so many large funds holding it that it may not correct down until some really bad news comes out. I personally believe this is a huge over-valuation...

[/ QUOTE ]

Remember Keynes: "The market can stay irrational longer than you can stay solvent." [img]/images/graemlins/grin.gif[/img]

I agree that 106.1:1 P/E ratio is pretty sick...

[/ QUOTE ]

Yeah, my guess is it might not correct down for a few quarters until bad numbers start coming out, or if the whole market hits a little bump (which it seems to be doing a lot) Amazon could drop a lot if the confidence bubble deflates.

No idea how long this would take.

Anyway - my main question is if I want to make this play what's the best vehicle for making a bet against it?

[bmxicle]

Amazon just released that they are almost finished a digital music store that will compete with itunes. I think that's the reason for the speculative jump in the stock price.

[pig4bill]

It's wildly overvalued based on the last earnings. The buying stems from their projections. This is key, imo:

[ QUOTE ]
To be sure, there are other reasons why Amazon's latest Wall Street beating results. As much as a third of its profits are from a surprisingly low tax rate during the quarter.

[/ QUOTE ]

I haven't been able to find out if this tax break was one time, or how long it may continue. Without the tax break, it's really overvalued.

[ahnuld]

Why are people equating valuations with past earnings. You should only care about future earnings, which is all shareholders are entitled to.

[jumbojacks]

Supposedly they're music store plans on selling DRM free music. That could be pretty big.