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Why I Would Sell Amazon

“Is Amazon the Netflix of 2012?” That question was posed in a recent MarketWatch article. And the answer: it could be if it keeps this up.

But today the company is being praised. CEO Jeff Bezos was named MarketWatch’s CEO of the Year for 2011. And the National Retail Federation and American Express named the company number one in customer service for online retailers, up from number two last year.

The world’s largest internet retailer has taken a big bite out of big box stores. And in December the company sold “well over” 1 million Kindles per week, with the most demand for the Kindle Fire tablet…and gifting of Kindle books rose 175% for the holiday season.

But margins are slim…and have declined for the past three quarters in a row. The Kindle Fire (which sells for less than half the price of an iPad) has been called ‘a lot of smoke’… because it costs more to produce than it sells for.

While it can be said that the company is sacrificing margins in the short-term because it is focused on the long-term, the market will be quick to punish if there is any disappointment in the next earnings report.

And the other thing to question is how Amazon is handling its image. Last year, Netflix was ‘callous’ enough to raise prices for its content when its consumers were feeling cost-conscious…and as a result it lost 800,000 subscribers and watched its stock drop 77% from its high.

There is no room for arrogance when customers are watching their wallets. And recently member of Amazon Moms got an email that said:

* Starting on January 24, 2012, the maximum discount available on diapers and wipes subscriptions will be 20%. This includes a 5% Subscribe & Save discount plus an additional 15% exclusively for Amazon Mom members who are earning free shipping benefits or have an active Amazon Prime membership. * Customers who join Amazon Mom in 2012 will get three months of FREE Two-Day Shipping benefits. However, as a founding member of the Amazon Mom program, you were eligible to earn up to one year total of free shipping benefits.

Amazon Moms receive discounts as part of Amazon Prime, which is a membership program that has benefits like free two-day shipping and free streaming movies. Amazon Moms were getting deals like a free year’s membership to Amazon Prime and a 30% discount on diapers. But the recent email basically means Amazon Moms can expect a lot less.

And if you want to join Amazon Moms right now, here’s what you’ll read on the sign-up page:

Looking to join Amazon Mom? You’re in the right place. But at this time, we’re not accepting new members to our program. If you’d like to be notified when Amazon Mom memberships reopen, please join our waitlist.

Netflix has been called “the poster child for public companies that couldn’t get out of their own way”. If Amazon doesn’t want to end up looking like a cautionary tale, it might want to be careful about its reputation.

But putting all of that aside, the stock is a sell. A long-term sell signal was confirmed in late 2011, and that alone is reason enough to steer clear of the stock.

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