Amazon (AMZN) rose 0.51% Friday to $1.817.27 after reporting earnings Thursday evening that blew away analyst estimates. But I'm not buying it -- figuratively or literally.
Here are seven reasons why:
Reason No. 1: Antitrust Worries
As I've discussed for almost a year, the most significant potential headwind for Amazon is the existential risk that the Trump administration will use antitrust laws to slow down or end the company's aggressive horizontal and vertical acquisitions.
After all, the firm's Amazon Web Services unit has been subsidizing anti-competitive behavior in the firm's other businesses, helping Amazon create a near monopoly in online distribution. Investors have given AMZN a blank check to do anything and disrupt lots of industries, with AWS funding it all.
But capitalism hasn't worked here, and many people have lost jobs in industries that Amazon has entered. And remember, U.S. antitrust regulators long ago sued John D. Rockefeller and his Standard Oil trust over its distribution practices and won -- forcing the company's breakup. I doubt investors would like the picture if regulators ever did something similar with Amazon, forcing the firm to spin off Amazon Web Services.
Reason No. 2: Lofty Valuations
AMZN trades at 45x trailing-twelve-month earnings before interest, taxes and depreciation (EBITD). That's just a 2% return to the buyer.
Similarly, the stock carries more than a 180x price-to-earnings ratio on a trailing-twelve-month basis. That equates to only 0.5% return to the shareholder.
As a result, Amazon has to grow very fast to justify its hefty stock price. AMZN's current share price probably assumes 50% growth in EBITD and/or earnings per share.
That's not impossible given the company's low margins, but given AMZN's historic inability (or unwillingness) to raise margins, its top line would need to grow $90 billion to $120 billion in each of the next two years. (By way of comparison, the company's top line will grow some $70 billion this year).
Unfortunately, Facebook (F) -- which tanked Thursday on disappointing results -- provides a good view of what happens when things slow down.
The bottom line: I respect the Law of Large Numbers, and there are subtle signs of slowing at Amazon. For instance, second-quarter vs. first-quarter revenues grew at the slowest pace in four years.
Reason No. 3: Burgeoning Competition
AMZN clearly has at least three unique and superior businesses -- Amazon Prime, Amazon Alexa and Amazon Web Services -- and its ability to collect advertising dollars could mean a fourth "leg" to the stool.
However, investors only get to see broken-out numbers for Amazon Web Services, and these show that AWS accounted for more than 100% of first-half operating income.
Unfortunately, AWS' growth is slowing -- and the unit faces increased competition from rivals with deep pockets, like Alphabet (GOOG) , (GOOGL) , IBM (IBM) and Microsoft (MSFT) . In fact, AWS is already losing market share to MSFT.
That doesn't augur well for future margins given the lower margins for the rest of Amazon's operations. For example, food retailing is only a 6-7x multiple business.
Reason No. 4: EBITD
More than 90% of Amazon's trailing-twelve-month EBITD is from the "D" (depreciation). What cash flow Amazon makes is from building things, not from running them at a profit (except for AWS).
Reason No. 5: A Growing Share Count
AMZN is getting a bit tricky with its finances, with share count growing by 8 million over the past year. (That's $15 billion at current prices.)
This reflects a tightening labor market, especially on the West Coast.
Reason No. 6 Rising Interest Costs
Second-quarter interest expenses are 8x what the company spent six years ago.
Reason No. 7: Not-So-Free Cash Flow
The latest numbers show that there's not an abundance of free cash flow.
(This column -- which has been updated to reflect AMZN's closing price -- originally appeared at 9:56 a.m. ET on Real Money Pro, our premium site for Wall Street professionals. Click here to get great columns like this from Doug Kass and other writers even earlier in the trading day.)