Amazon could kill Zulily

Starry-eyed investors in Zulily may lose their shirts if Online Deals becomes more aggressive in the daily-deal business; considering Zulily's success, Amazon moving in to crush Zulily is a highly likely event.

Please click here for an annotated chart.

On Feb. 24, 2014, after the market close, Zulily reported earnings of $0.10 compared to consensus of $0.04; reported revenues of $257 million vs. consensus of $226 million. However, for the first quarter, the company saw a loss compared to the consensus EPS estimate of $0.03; for Q1 company sees revenue of $225- 235 million compared to the consensus of $223 million. For the entire year, company sees income of $15 to $25 million. It is worth noting that now the market capitalization of Zulily is $8.88 billion. At the midpoint, this means P/E of 444. The PEG ratio (five-year expected) is 6.93.

Jim Cramer is very intelligent and has a lot of investment experience. He is also a conscientious person. He took to the air in the afternoon and clearly stated that the move up in Zulily was ridiculous. He further stated that when he had made the statement, he thought that Zulily would move up $2.00-$3.00, this computes to stock price of about $45.00- $46.00 compared to $72.00 as of this writing. For the most part, the media did not pick up Cramer's clarification but kept on repeating Cramer's earlier statement that Zulily could beat Amazon.

Here are the reasons why Zulily can fall dramatically.

No barriers to entry

Heavy competition on the way

Not only Amazon, but eBay , Wal-Mart , Target and Nordstrom's may become more aggressive. There are also other specialty flash-sale competitors, such as Rue La La, HauteLook, Gilt Groupe and One Kings Lane.

Groupon bought flash-sale company Ideeli for $43 million and indications are that it plans to become more aggressive in this business.

No quick delivery

Consumers cannot expect a quick delivery from Zulily like they can from Amazon, eBay or Wal-Mart. For the most part, Zulily does not even place orders with its vendors until a sale ends. Zulily's average shipment time has been running about 11 days, it goes to reason delivery time is farther out.

You be the judge. Is an online retailer with no fulfillment infrastructure on par with the likes of Amazon and Wal-Mart worth $8.8 billion when the company itself projects that it will only earn $15-25 million for the entire year?

Disclosure: Subscribers to The Arora Report are long Wal-Mart and eBay.