Amazon and Netflix Stocks Are Overvalued. Here's Why...

TL;DR

• Amazon and Netflix are overvalued due to high market caps and profit expectations, raising concerns about future growth potential.

Transcript

I believe that Amazon stock in Netflix stock are massively overvalued and today I'm going to take you guys through some mathematics on why I believe these two stocks are massively overvalued right now okay now before anybody goes on tax me it says all you don't believe in Amazon you don't believe in Netflix that is a bunch of BS I absolutely believ... Read More

Key Insights

• ✋ Market caps of $850 billion (Amazon) and $180 billion (Netflix) contribute to high valuations.
• 😀 Amazon and Netflix face challenges in achieving significant profit growth to justify current valuations.
• 🥳 Forward P/E ratios of 85 (Amazon) and 90 (Netflix) are significantly higher than the industry average of 16.
• 👾 Intense competition in the video streaming space poses a threat to Netflix's profitability.
• 👨‍💼 Cutting content production costs could adversely affect Netflix's subscriber base and business model.
• 🍰 Shorting stocks carries risks, especially if the investment thesis does not align with the broader market sentiment.
• ⚾ Speculating on put options for Netflix in 2021 could be a strategy based on potential valuation concerns.

Questions & Answers

Q: Why does the speaker believe Amazon and Netflix are overvalued?

The speaker believes Amazon and Netflix are overvalued due to their high market caps, profit expectations, and forward P/E ratios which are significantly above the industry average.

Q: What challenges do Amazon and Netflix face in justifying their valuations?

Amazon needs to increase its profit from $10 billion to $53 billion to justify its valuation, while Netflix would have to reach over $11 billion in profit, facing intense competition and high content production costs.

Q: Would the speaker consider shorting Amazon or Netflix?

The speaker states he would not consider shorting either stock, as the current valuation does not guarantee a decline in stock prices, and shorting can be risky if the investor base perceives the companies differently.

Q: What options would the speaker consider in relation to investing in Netflix?

The speaker mentions the possibility of buying put options for 2021 on Netflix, around a $300 strike price, if the valuation continues to rise, as he believes increasing competition may impact Netflix's profitability.

Summary & Key Takeaways

• Amazon has a market cap of $850 billion and is expected to have a profit of $10 billion, leading to a high forward P/E ratio of 85.

• Netflix's market cap exceeds $180 billion, with an expected profit of $2 billion, resulting in a forward P/E ratio of 90.

• Both companies face challenges in achieving significant profit growth to justify their current valuations.