DD - $AMZN 2500 PUTS 4/29

Amazon will tank on earnings due to 7 factors: Price increase announced in February 16 Amazon stock buyback/split announced March 9, 2022 Amazon 5% fuel/inflation surcharge announced April 13 $JBHT last mile logistics company Q1 results Valuation/growth issues Competition hitting inflection point $UPS earnings 4/26 TBD 1 - Amazon announced a price increase which reflects that internally they are seeing increases costs and likely new member stagnation. Market has likely reached saturation like $NFLX reached. 2 - This is a gambit to create short term hype. If you review FY21 financials they generate no free cash flow (cash from ops - capex - stock based comp). A $10 billion buyback ONLY keeps their share count flat at best. It does not reduce it. (509k -503k = 6k. 6k / 503k = 1.2% dilution. 1.2% dilution on 1.6 trillion market cap means it requires almost $20 billion free cash flow to buyback the stock comp. We know stock split means nothing in reality but it's used to pump up the market on your company. 3 - This is weird that it came out about a month and change after quarter end. Seems like management/board received draft financials and didn't like what they saw. A 5% surcharge is their "fix" for future quarters. 4 - $JBHT just had earnings with 33% revenue growth and huge earnings growth. Except ALL of that earnings growth is because they charge a fuel surcharge. Without it they had lower earnings than 2021. 5 - The valuation for a company growing operating cash flow 10-15% would be in the 20x -25x normally. This company hides the fact that they can't create real cash flow using stock based comp and they are granting so much that they now can't buy enough back to even stay at 0 dilution. We may see Amazon only grow high single digits (inflation rate) and the premium does not make sense. Same issue as Netflix. 6 - $TGT, $WMT, $COST and other retailers are doing a much better job of leveraging their local stores with delivery. They can share the delivery price burden with their retail store sales and absorb more costs. TGT is growing at the same revenue year over year as $AMZN as of FY 20 to FY 21. 7 - Watch $UPS earnings to get an idea of how the costs of delivery were in Q1. This will give us more insight into what to expect for $AMZN. I am risk averse so putting like 1% of my boomer portfolio into $2500 Puts. If I am right I expect a COVID roundtrip back to $2100 by the end of the month. I expect $2400 to be the realistic initial sell-off. At $2400 you make $250-$300 into $10k so risk/reward is there. I will have a few thousand worth. Have $1k so far but will add as we get closer and likely after $UPS earnings. Biggest risk is that I DO think AWS will continue to do well AND I think capex for AWS may be cheaper than expected (Check GPU/CPU prices dropping everywhere and becoming readily available). For chart fiends there is NO volume between $3k and $2400. For street cred on financials: My day job is income tax manager for 20+ billion revenue public company. Edit: 2 new items brought to my attention. They will mark to market their Rivian loss which could trip up the algos that trade on headline #s. Also, $FDX earnings are out and guidance was not good. 2nd Edit: $AMZN just announced they are opening up prime delivery services to 3rd parties. VERY strange timing at midnight on 4/21. Why wouldn't they save this announcement for earnings call next week?

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DD - $AMZN 2500 PUTS 4/29

bearish

Amazon will tank on earnings due to 7 factors:

  1. Price increase announced in February 16
  2. Amazon stock buyback/split announced March 9, 2022
  3. Amazon 5% fuel/inflation surcharge announced April 13
  4. $JBHT last mile logistics company Q1 results
  5. Valuation/growth issues
  6. Competition hitting inflection point
  7. $UPS earnings 4/26 TBD

1 - Amazon announced a price increase which reflects that internally they are seeing increases costs and likely new member stagnation. Market has likely reached saturation like $NFLX reached.

2 - This is a gambit to create short term hype. If you review FY21 financials they generate no free cash flow (cash from ops - capex - stock based comp). A $10 billion buyback ONLY keeps their share count flat at best. It does not reduce it. (509k -503k = 6k. 6k / 503k = 1.2% dilution. 1.2% dilution on 1.6 trillion market cap means it requires almost $20 billion free cash flow to buyback the stock comp. We know stock split means nothing in reality but it's used to pump up the market on your company.

3 - This is weird that it came out about a month and change after quarter end. Seems like management/board received draft financials and didn't like what they saw. A 5% surcharge is their "fix" for future quarters.

4 - $JBHT just had earnings with 33% revenue growth and huge earnings growth. Except ALL of that earnings growth is because they charge a fuel surcharge. Without it they had lower earnings than 2021.

5 - The valuation for a company growing operating cash flow 10-15% would be in the 20x -25x normally. This company hides the fact that they can't create real cash flow using stock based comp and they are granting so much that they now can't buy enough back to even stay at 0 dilution. We may see Amazon only grow high single digits (inflation rate) and the premium does not make sense. Same issue as Netflix.

6 - $TGT, $WMT, $COST and other retailers are doing a much better job of leveraging their local stores with delivery. They can share the delivery price burden with their retail store sales and absorb more costs. TGT is growing at the same revenue year over year as $AMZN as of FY 20 to FY 21.

7 - Watch $UPS earnings to get an idea of how the costs of delivery were in Q1. This will give us more insight into what to expect for $AMZN.

I am risk averse so putting like 1% of my boomer portfolio into $2500 Puts. If I am right I expect a COVID roundtrip back to $2100 by the end of the month. I expect $2400 to be the realistic initial sell-off. At $2400 you make $250-$300 into $10k so risk/reward is there. I will have a few thousand worth. Have $1k so far but will add as we get closer and likely after $UPS earnings.

Biggest risk is that I DO think AWS will continue to do well AND I think capex for AWS may be cheaper than expected (Check GPU/CPU prices dropping everywhere and becoming readily available).

For chart fiends there is NO volume between $3k and $2400.

For street cred on financials: My day job is income tax manager for 20+ billion revenue public company.

Edit: 2 new items brought to my attention. They will mark to market their Rivian loss which could trip up the algos that trade on headline #s. Also, $FDX earnings are out and guidance was not good.

2nd Edit: $AMZN just announced they are opening up prime delivery services to 3rd parties. VERY strange timing at midnight on 4/21. Why wouldn't they save this announcement for earnings call next week?

read-time
3 min
2500.00
Target Price
5/ 10
Confidence
1-2 Months
Timeframe
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