Behind The Idea #44: Aswath Damodaran On Amazon's Limits
Our Amazon miniseries rolls on to part three, as Professor Aswath Damodaran joins Behind the Idea to explain why he went short Amazon in September, and what he's learned from covering the company. He approaches Amazon with the utmost of respect, but notes that all growth stories hit a limit at some point. We hit on the accounting, the ulcers that result from shorting Amazon, and how to find the best way to value a company.
Topics covered:
2:30 – Damodaran's adjustments to valuing Amazon given its persistent outperformance 4:30 – Why is the time right to short Amazon for the professor? 6:30 – Modeling for Amazon's continual disruption of new markets 9:00 – The limits to Amazon’s growth and past examples 10:30 – What do we do with margins for a perpetual start-up company? 14:45 – The gap between cash flows and net income 17:15 – Amazon’s probing of soft spots and enduring patience 20:30 – Prime’s journey to profitability 24:00 – Modeling in Regulatory Risk, and the limits on growth in places like India 29:15 – The tail still skews to the right for Amazon – so why go short against that? 32:15 – R&D and capital lease accounting 37:30 – Using the story to find the right valuation tool
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