The Wall Street firm UBS downgraded shares of
The move had an immediate effect on Amazon stock and shares
are trading lower on Wednesday by as much as 4%.
The concern for UBS has to do with Amazon Prime subscribers.
The recent quarterly results at the online retailer combined with
customer surveys suggest that fewer subscribers will renew if
Amazon raises the price for the Amazon Prime above the current
$79 per annum.
UBS set a new price target for Amazon shares at $375 to
trading at $350 per share, that target is fairly meaningless. The
bigger news is that Amazon received a downgrade.
It simply doesn't happen very often for what has become the
beacon of the market. The can-do-no-wrong company has earned a
ton of respect from the Street . . . so much so a downgrade has
become out of the question.
After the UBS downgrade, will others follow?
Valuation with respect to Amazon has long taken a back seat to
reality. What matters for the stock is psychology. To the extent
one Wall Street firm loses faith, others will do the same simply
for not wanting to be the last man standing.
It's been a dangerous game to be short Amazon. The stock has
done nothing but appreciate in value in a major way.
Perhaps now might be the time.
As has been the case for some time, fundamental value at
Amazon simply does not exist.
Analysts expect the company to make $1.95 per share in 2014.
At current prices, the stock trades for 179 times that number.
Amazon trades for just over 2 times sales and 17 times book
It's an expensive stock, plain and simple, and perhaps now
The big thing I would worry about is competition. Forget about
the current known players like traditional brick-and-mortar
retailers trying to infringe on Amazon's chokehold on the
Best Buy (
) and Wal-Mart (
are all legitimate threats to Amazon, but the real threat might
come from overseas.
Earlier this week Chinese online retail giant Alibaba
announced that it was taking the first steps to set up an online
marketplace in the U.S. The 11 Main site will offer products in
the fashion and jewelry space.
That move, in addition to small investments made in the U.S.,
suggests the company has bigger plans for competing in the
That should scare Amazon investors holding a stock that is
very, very richly priced.
I wouldn't want to be holding this one when the music