Amazon and Netflix Stocks Are Overvalued. Here's Why...
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I believe Amazon and Netflix Stock are massively overvalued. In this video, I take you through the math on why I believe Amazon stock and Netflix Stock are overvalued. Enjoy!
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Now, before anybody goes on tax me and says, Oh, you don’t believe in Amazon, you don’t believe in Netflix, that is a bunch of BS. I absolutely believe these companies have futures, okay.
But just because I believe in a company doesn’t mean it deserves a ridiculous valuation. And these two companies, in my opinion, are the poster child of kind of companies that have ridiculous valuations on right now. Okay, just because you could be doing better and better stuff in the future.
Just because you might have more profits coming in the future doesn’t mean that you deserve a ridiculous valuation. I’m gonna explain to you guys how ridiculous these valuations are out of control on these two particular stocks.
So I hope you guys really enjoy this today. Let’s just get right into this guys. So something I want to start out with here is we got to think what is the average forward p e for a company in the s&p 500.
Right now, the average forward p on a company is right around 16. Okay, right around 60. Now, this takes into account companies that aren’t growing right now maybe are shrinking company that are fast growers.
This takes in the average of all companies out there, okay, so the average for P is somewhere around a 16 right now. All right. That’s something to keep in mind. And then we’re gonna go from there. Okay, so let’s deal with Amazon first.
And then we’ll head down to Netflix, and then I’m going to tell you guys whether I’m gonna think about shorting either these stocks, whether I’m gonna buy put options or whether I don’t want to touch any of them either way. Okay.
So Amazon, first off, Amazon, right now has a market cap of $850 million. All right, $850 billion in this company, the way it’s going up, it could approach a trillion dollar market cap by the end of this year, if it continues its growth trajectory as far as where the stock is going. Okay.
$850 billion, unbelievably expensive market cap, okay. Unbelievably expensive. They have two main businesses. One is their retail side of their business. Okay. The other businesses, Amazon Web Services, those are their two main businesses out there. Okay.
Now, Amazon is expected to have a profit this this upcoming year of somewhere around $10 billion. All right, which would be by far the biggest profit Amazon has ever made. This is when I say profit, I mean, net income, that would be by far and away the biggest they’ve ever had.
And that’s expected to be this year, okay, somewhere around $10 billion. That’s great. All right. But that puts a company at a four P of 85. A Ford P of 85. Remember, the average company is trading at 16.
They’re trading at five. Now I will give it to Amazon, they deserve a bigger premium for where therefore, you should be compared to other companies. Why? Because they have massive growth, this company’s growing in a major way you look at their growth numbers and revenue across the board.
They’re growing. So they definitely deserve a premium over the average company, however, is you know, do they deserve an 85? I don’t know about that. Because here’s how we got to think about it. Okay.
Amazon basically needs to have $53 billion in profit per year, someday to make to make this valuation that it currently has. Makes sense. Okay. So they need to go from what is expected what their expected profit is this upcoming year.
Which is around 10 billion, they need to increase that to $53 million to make the stock seem like it’s justifiable, okay, it’s valued at a fair value. All right, they need to hit this number. Some day, guys, that’s a big jump from 10 billion in profit that they might do this year.
Remember, it’s not even a guarantee that they will do 10 billion. But like I said, this would be by far their biggest profit ever in the company’s history. They knew this number. That’s great. But still from 10 billion to 53 billion.
We’re talking about a massive, massive, massive difference. Now something you might say is, well, Amazon, they spent a ton of money, okay, they spent a ton of money, they’re expanding, they’re buying, you know.
They’re making new fulfillment centers and new distribution and doing all these different things, expand their businesses, new servers, more cloud infrastructure, they’re going to be building a new headquarters and whatnot.
As of right now, basically, what what I knew based upon my my calculations, Amazon could cut around $10 billion of spending, okay, now the problem with cutting this $10 billion in spending is this would eventually just kill future growth, okay.
They would be able to keep their the what they have going currently going, Okay, the current business and Amazon Web Services, their current retail business, but that extra $10 billion dollars roughly, is for stuff that’s expanding out their future that’s going to keep the revenues pouring in and whatnot.
So if they cut that, yeah, then Ulsan they go up to maybe, let’s say, you know, next year they make a 20 billion plus dollar profit. Now we’re getting closer to that number, but at the same time they cut that then they’re cutting off the growth and then I digress.
And you know, you can see that this company wouldn’t make sense at the valuation right. So because then I’m really become a company that’s no longer growing eventually. All right, so that would be an issue.
So in Amazon situation here, in my opinion, this company is massively overvalued? Do they deserve a premium over what an average company is? Yes, absolutely. Did it deserve a premium? But do they deserve to be trading at a forward P of 85.
When the average for P and companies is a 16? No, absolutely not, in my opinion, they gotta somehow someday make $53 billion in profit, guys. That’s a big jump from here. Okay, can they get to it? Maybe.
But when is this gonna be five years from now? I highly doubt it. 10 years from now, maybe, maybe. But a lot of things can change in 10 years. That’s something else we got to keep in mind there.
A lot of things can change. You know, 10 years ago, you could have said to most people out there 10 years ago, you could have said to the average person is Walmart still going to be by far the than way than the most dominant retailer in the world.
And the most relevant retailer in the world? 10 years ago, people would have said, Yes, okay, almost every single person you would ask they would have said yes. If you were to set Amazon who said Amazon? Yeah, right.
No chance of them you know, maybe they could be you know, definitely increased their their online business and whatnot, but they’re not taken out Walmart. Well, now guess what has happened? Amazon has come in and they’ve expand their business in a huge way.
Now, they’re the most relevant retailer in the entire world, and certainly in North America. Okay. Walmart’s now the second fiddle, okay, I’ve been talking about this for several years in this channel.
So you know, if things can change fast, I’m just I’m just gonna say that, you know, I’m not saying somebody’s coming to take out Amazon. I’m just saying if somebody does take out Amazon in the next 10 years, don’t be surprised because this is the way retail moves. Okay.
The big dog comes in, they kind of dominate for a decade into a decade or two. And then somebody comes in and takes the you know, the market share away from them. It’s it’s consistent across retail throughout history.
A new business model emerges, and it takes out the old business model. Okay. Not saying that’s necessarily going to happen. I’m just saying when you’re expected to someday to hopefully make 53 billion and think that a lot of things could change in that amount of time, guys, it’s all I’m gonna say about that.
So Amazon, in my opinion, overvalued. All right, Netflix, let’s get into this one. Okay, another one of the hottest stocks in the stock market. I think the 52 week range on Netflix is probably somewhere around like $144.
And now it’s near a 52. Week high. I think $418 the stock has just gone absolutely parabolic. All right. Netflix now has a market cap of over $180 billion. All right, Netflix is a video streaming service, their whole business model. Okay, that’s their a one trick pony.
That’s all they have the video streaming service. That’s it. All right. Netflix has a market cap over $180 million, right massive market cap on this company. Like mind blowing. Okay, Netflix expected profit this year, is somewhere around $2 billion.
Now this would be by far their biggest profit they’ve ever had. Okay, so they’re expected, you know, net income somewhere around $2 billion this upcoming year, that would be phenomenal new record for the company right? Now, this puts the company still at a Ford P of 90. Already.
Even if they’ve that by far and away the biggest net income they’ve ever had in the company’s history, they’re still gonna be at a Ford P of somewhere around 90 on this company. All right, 90, were at an average of 16.
They’re at a 90, okay, Netflix needs over $11 billion in profit per year, Sunday, alright, to get from $2 billion of net income to over $11 billion some day to make make this valuation justifiable.
That’s a massive move up there, guys, that’s a massive move up, they’re going to either need to increase customers in a dramatic rate, or they’re going to need to basically go up on prices and a dramatic rate for customers because to get to $11 billion profit.
When you’re expected to maybe only pull in 2 billion, which once again, isn’t guaranteed. That’s a massive difference. Okay, there guys. Now, here’s the thing with Netflix, they have they could they could get to this number tomorrow, literally, the Netflix.
They’re expected to spend around $12 billion in buying content producing content, all that type of stuff. Okay. So they could cut this $12 billion. And next thing, you know, that they’re probably make, you know, $14 billion or so this year, which makes our market cap justifiable.
And may it actually be lower than average forward P. The problem is, this is so unrealistic because they cut this $12 billion. And all the Netflix customers will eventually be gone within 24 to 36 month period.
Like they would just devastate the business, because if they stopped spending, then they stopped being able to buy content and that content expires, somebody else goes out and buys it, okay.
And on top of that, they do produce no original content, which, you know, if they’re not producing any original content, and they’re losing all the old content, like why would anybody have Netflix, everybody would just start canceling their memberships.
And within 24 to 36 months, like Netflix business would be devastated, like completely devastate like, like, like literally no business model there anymore. They would probably be out of business.
So it’s completely unrealistic. Now you can see they could cut some of that spending. Okay, so let’s say that maybe instead of doing 12 billion, maybe they cut it down to 6 billion, all right.
They cut it down to 6 billion, and so then all sudden, the profit goes up to 8 billion and it looks like okay, now some we’re talking here now they got $8 billion in profit. Dang, now they’re doing good.
But the issue is they are almost kind of forced to spend this huge amount of money. Okay? The reason being is they got everybody coming in this space over the next one to two years, you know, from the from the big tech giants like Facebook, Apple, Google, all those type of companies.
I’ve talked about on this channel before are all coming in their space over the next year or two, then you got the old dogs like Disney and whatnot coming in their space, you got Hulu, you got all those type of competitors, this is just a massively competitive space.
This is going to become arguably the most competitive space. Oh, and by the way, Amazon, Amazon with amazon prime video, that’s something they’re taking more and more serious, and they’re spending a ton of money on.
So you have so many competitors seriously taking this game super serious for the next year or two, that they are pretty much in a position where they have to spend a ridiculous amount of money on new content.
Producing content, those type of things to keep their customers interested from going to some other service or cancer and learn Netflix or whatnot. So you know, you can make an argument.
Yeah, they cut it down maybe in half and they just spend 6 billion a year but man when it’s this competitive out there, you kind of almost need to keep this up. Okay. So as far as you know me, am I thinking about shorting either one of these stocks was shorting.
By the way for those of you guys not know is basically placing a met, now the stocks will go down? Absolutely not. I will not even think about shorting Amazon or Netflix. I would not even contemplate it for a second. Okay.
The reason being is just because, you know, I believe these companies are overvalued doesn’t mean the rest of the investor base believes the companies are overvalued. Okay? So just because I believe it doesn’t mean those stocks are gonna go down.
Alright, so that’s something we got to keep in mind. And keep in mind when you short stocks that start to go up and up and up, and you can just get absolutely killed. So what I consider shorting Netflix, or shorting Amazon, absolutely not no interest, okay.
When I think about even buying put options in Amazon, no, I’m not even interested in buying put options, okay, maybe if the valuation keeps creeping up, and it gets over, then maybe we’re talking about maybe a situation where I would contemplate maybe buying a put option, but as of right now, no, Netflix.
If this stock keeps increasing and hits around the $200 billion market cap, which it could maybe within weeks, or maybe a few months, right, I would consider I would consider some puts for 2021.
Okay, so 2021 options should be coming out in around October, usually, they’re released September October. So the 2021 put should be available, I would think something around a $300 strike.
If I do decide to do anything, somewhere around a $300 strike, but once again, I would want to see the valuation keep creeping up. And I wouldn’t want to pay a huge premium on this, I, you know.
I would maybe be willing to pay five bucks for the $5 premium for that are $7 premium, nothing really more than that I’d really want to pay and kind of just placing my bet that you know, this space is going to get massively competitive over the next couple years.
I think it might end up hurting Netflix profit more than ever, because they’re gonna have to keep spending like at an insane rate to try to fight off all these big dogs coming in, they will have just ridiculous sums of money to spend on content.
Producing original content, buying content, all those type of things. So you know, I would consider that but that’s not even a guarantee either because you know, sometimes see stocks can just get like caught like followings and they don’t care about anything.
You know, the investor base, you know, that especially the big fund managers, they don’t care that, you know, these companies are are ridiculously value. They’re like, Oh, just someday they might be able to make enough money to make this investment justifiable.
They’re hot stocks right now. So but in terms of the only one I consider, I would consider maybe buying puts for 2021 on Netflix. I would love to hear your opinions opinion down there in that comment section on these two stocks.
Amazon Netflix, do you feel like they’re overvalued undervalued fairly valued. I would love to hear from you guys in our comment section. As always, make sure you follow me on Instagram I post a ton of Instagram Stories especially a lot of a lot of things that are breaking news in the stock market.
Thank you for watching. Have a great day.