Author Topic: AMZN - Amazon.com Inc.  (Read 495115 times)

Grenville

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ItsAValueTrap

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Re: AMZN - Amazon.com Inc.
« Reply #21 on: November 03, 2012, 12:14:57 PM »
Walmart is a little different because it used to generate huge returns on equity.  If you look on Google Finance, Walmart has outperformed many high-flying tech companies like Intel.

It is possible that online retailing is more cut-throat since consumers generally shop around based on price.  With bricks & mortar stores / before online retailing, consumers would shop based on price and convenience (distance to the store).  Consumers are also affected by things like how goods are presented and could be upsold on impulse purchases like candy and things like that.  There is more value-add in B&M than in online, so maybe you would expect that it is possible to generate higher ROE for B&M than online.

*I know that Amazon is doing some value-added things like book/production suggestions, they spam you with special deals on stuff (it worked on me... I bought Max Payne 2 because they emailed me saying it was on sale), etc.

Ultimately I see online retailing having very low margins due to cutthroat competition... online retailers have to try to make it up by turning over their inventory very quickly.  It could eventually look like what's happening to Dell once the landscape becomes more competitive.

2- Of course Amazon has other lines of business.  They are the eBay for used books.  And they are doing something very similar to eBay stores (allowing small merchants/manufacturers to sell online and have exposure to people searching for things).

3- Why would you short this?  Haha.  There are a lot of overpriced companies out there with little chance of making a profit.  Look at the Dot-Bomb 2.0 stocks (I wouldn't short those since the borrow is ridiculous).
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Eric50

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Re: AMZN - Amazon.com Inc.
« Reply #22 on: November 03, 2012, 01:26:28 PM »
Waou…. Lots of misconceptions and inaccuracies in this thread. I’ve worked at amazon in several finance positions for 7 years before I started my fund.  I left 4 years ago but I still follow the business pretty closely. I feel like I need to clarify/explain a few things:

- Re the fraud issue (Cardboard). You have to substantiate why you think it’s a fraud. In the 7 years I’ve worked there I’ve never seen any fraud. The culture there is very aggressive but people are honest. I think you are making a very strong accusation and should substantiate it;

- I don’t see why selling at a loss in order to gain market share would be a fraud…. This is a competitive market with thin margins… Competitors want to gain market share. Sometimes one has to be aggressive and there will be some payback later. I’ve seen price wars with Walmart when I worked there. Sometimes Walmart won, sometimes Amazon won. This is just the way the market works. But this is no fraud;

- Q3 was the first unprofitable quarter for amazon in years. Rereading the thread it feels like early 2000, when amazon had never made a profit…. It is now a very different business with years of growth and profit. Back when I joined in 2001 revenue was about $2.5bn with no profit, it will be above $60bn this year and profitable. Do you know any other companies that have grown that much over the past 12 years?

- Profitability has decreased recently because they are investing heavily in tech (kindle, pads, etc…) and in new fulfillment centers. FCs are the backbone of the business, a huge moat because it’s super difficult to replicate and amazon has developed over the years a huge expertise at it. It’s a significant cost now but it will pay back very nicely in the future: they’ll have the infrastructure and the competition won’t;

- I agree it’s a very expensive stock now but I would not bet against it. Growth reaccelerated 4-5 years ago and it’s still growing very nicely. It might slowdown a little bit in the future but growth will still be above average. I suspect it will be the size of walmart in 10-15 years. I have no position right now but if I had a gun against my head and was forced to take a position I’d be bearish short term but bullish long term;

- Comparing amazon to CRM is a huge error in my opinion. You should do your homework, amazon is a much better business and much less overvalued. There are much better short ideas available in the market these days (SPLK, BV, LULU, CRM, etc);

- Re cloud computing, talk to the people in that field or the small entrepreneurs who use AWS and you’ll see how they respect what amzn does;

- I think amazon’s moat keeps growing all the time: millions of people buys stuff there systematically because they they know they’ll get a good deal. The warehouse infrastructure is little talked about but is a huge moat. Kindle is locking in the digital book market;

- Bezos is a super smart guy and he’s been leading all the key innovations: free shipping under $25, prime, kindle, etc… He is long oriented and betting against him is hardly a good idea;

- Re “domestic dumping” you’d have to substantiate what you mean…

- Re “stock compensation”, please check your premises. There are no stock options issued to employees. They get stocks awards that are included in the cost;

- Re the people there, it’s a very competitive place with long hours and lots, lots of very smart people. You either like it or not. People who don’t typically don’t stay long… But it’s an exciting and challenging place. Would you rather work 9 to 5 at IBM that grows 2% a year?

The reality is that the stock is quite expensive because there aren’t so many businesses that are growing that fast, that are changing the rules of the game so much and with such a quality management.

Grenville

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Re: AMZN - Amazon.com Inc.
« Reply #23 on: November 03, 2012, 01:59:19 PM »
Waou…. Lots of misconceptions and inaccuracies in this thread. I’ve worked at amazon in several finance positions for 7 years before I started my fund.  I left 4 years ago but I still follow the business pretty closely. I feel like I need to clarify/explain a few things:
....

I appreciate the post and the insight. I enjoy learning more about the company.

Amazon is becoming an enabler for other businesses through AWS, FBA (Fulfillment by Amazon), Third party Sellers on product pages and KDP (Kindle Direct publishing).

ItsAValueTrap

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Re: AMZN - Amazon.com Inc.
« Reply #24 on: November 03, 2012, 02:33:35 PM »
Quote
- Profitability has decreased recently because they are investing heavily in tech (kindle, pads, etc…) and in new fulfillment centers. FCs are the backbone of the business, a huge moat because it’s super difficult to replicate and amazon has developed over the years a huge expertise at it. It’s a significant cost now but it will pay back very nicely in the future: they’ll have the infrastructure and the competition won’t;
I feel like people make this argument for Walmart.  Yet when I looked at Tractor Supply Company, it seems that there are new scrappy little retailers out there that are beating Walmart.  Tractor Supply is opening smaller stores in former Walmart locations.  And they aren't even the best in their niche.

Here's what the CEO of Rural King has to say:
Quote
“We compete directly against Walmart, Home Depot, Lowe’s and Tractor Supply,” Melvin explained. He said he continues to be impressed with Menard’s, which he believes is the preeminent competitor in his space.
http://www.monmouthcollege.edu/information/newsEvents/newsDetails.aspx?Channel=%2FChannels%2FCampus+Wide&WorkflowItemID=93c05545-822c-4656-9584-8363d926e7e2
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valueInv

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Re: AMZN - Amazon.com Inc.
« Reply #25 on: November 03, 2012, 07:05:33 PM »
- Q3 was the first unprofitable quarter for amazon in years. Rereading the thread it feels like early 2000, when amazon had never made a profit…. It is now a very different business with years of growth and profit. Back when I joined in 2001 revenue was about $2.5bn with no profit, it will be above $60bn this year and profitable. Do you know any other companies that have grown that much over the past 12 years?
Apple? Google?

- Profitability has decreased recently because they are investing heavily in tech (kindle, pads, etc…) and in new fulfillment centers. FCs are the backbone of the business, a huge moat because it’s super difficult to replicate and amazon has developed over the years a huge expertise at it. It’s a significant cost now but it will pay back very nicely in the future: they’ll have the infrastructure and the competition won’t;

Also, their investments should show up in their capex? Why is their operating income negative?

What is the impact of having to charge sales tax on their business?

- I think amazon’s moat keeps growing all the time: millions of people buys stuff there systematically because they they know they’ll get a good deal. The warehouse infrastructure is little talked about but is a huge moat. Kindle is locking in the digital book market;
Why are they increasing FCs and warehouses  if their business is moving from physical goods? Is it because they were forced to build more FCs are part of their settlement deals?

If people are shopping at Amazon because they know they get a good deal, how will Amazon be able to raise prices and margins? As soon they do, the customers and the moat is gone.

benchmark

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Re: AMZN - Amazon.com Inc.
« Reply #26 on: November 03, 2012, 09:39:34 PM »
Quote
Why are they increasing FCs and warehouses  if their business is moving from physical goods? Is it because they were forced to build more FCs are part of their settlement deals?

If people are shopping at Amazon because they know they get a good deal, how will Amazon be able to raise prices and margins? As soon they do, the customers and the moat is gone.

I think Amazon's moat on retail is really the scale and the know-hows on supply-chain and delivery, much like Walmart. In addition, the move to cloud/content/AWS is something that will pay off in the long run.

Eric50

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Re: AMZN - Amazon.com Inc.
« Reply #27 on: November 04, 2012, 12:13:22 AM »
- Q3 was the first unprofitable quarter for amazon in years. Rereading the thread it feels like early 2000, when amazon had never made a profit…. It is now a very different business with years of growth and profit. Back when I joined in 2001 revenue was about $2.5bn with no profit, it will be above $60bn this year and profitable. Do you know any other companies that have grown that much over the past 12 years?

Apple? Google?


Yes Apple and Google but who else? And I would argue that Amazon is a much better business long term than Apple. Apple is currently red hot as it makes the cool toys that everybody wants to have, but who knows if its products are going to be that cool in 5 years? I don't know about Apple but I know that in 5 years more people will be buying stuff from amzn.

- Profitability has decreased recently because they are investing heavily in tech (kindle, pads, etc…) and in new fulfillment centers. FCs are the backbone of the business, a huge moat because it’s super difficult to replicate and amazon has developed over the years a huge expertise at it. It’s a significant cost now but it will pay back very nicely in the future: they’ll have the infrastructure and the competition won’t;

Also, their investments should show up in their capex? Why is their operating income negative?


Yes, their investments show up in capex. Capex increased by $500m yoy so far this year. Operating income is negative primarily because of the impairment of the goodwill on the living social investment (that was a huge mistake).

What is the impact of having to charge sales tax on their business?


This was a main concern of mine a few years ago as I thought it would have a huge negative impact. I'm less concerned now as I think their moat has increased. People will still be buying from amazon even if prices increase with sales tax. I thought that amazon gave up easily last year in that sales tax battle so I suspect that's a sign they aren't too worried.

Also, they are competing more and more with the physical stores with same day delivery.

- I think amazon’s moat keeps growing all the time: millions of people buys stuff there systematically because they they know they’ll get a good deal. The warehouse infrastructure is little talked about but is a huge moat. Kindle is locking in the digital book market;


Why are they increasing FCs and warehouses  if their business is moving from physical goods? Is it because they were forced to build more FCs are part of their settlement deals?


No, they are increasing the # of FCs because they know the business is growing fast and they need the infrastructure to handle the increased volume of stuff to pick/pack/ship. The range of their product lines keeps increasing.

If people are shopping at Amazon because they know they get a good deal, how will Amazon be able to raise prices and margins? As soon they do, the customers and the moat is gone.


Remember this is a retailer. It doesn't have huge margins. They make most of their money on volume. Why would they raise prices? They compete on price... I suggest you read Bezos first letter to shareholders to better understand how he thinks.

bennycx

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Re: AMZN - Amazon.com Inc.
« Reply #28 on: November 04, 2012, 05:53:48 AM »
For anyone who thinks Amazon doesn't have a huge moat, try to start an online retail store and compete with them and report back in a couple years.

Here's another issue I see with Amazon, taken from the Western Union discussion:

Quote
Warren is somewhat obsessed with companies that can raise their prices on their customers.  e.g. if Moody's raised its prices, Berkshire would still pay the higher price for bond ratings.

If Western Union is lowering its prices due to its competition then maybe its moat/advantage is not that big at all.

Can Amazon raise their prices? I'm not so sure. Does that mean they don't have a moat? Not quite, if they are going to maintain themselves as the low cost/most reliable online retailer.

I think it's important to realize what type of company Amazon is trying to stabilize themselves as: the low-cost online retailer with amazing shipping service. Can they execute on this is the real story.

Hey. First time poster here. That's exactly how I think of Amazon at the moment. Selling at almost cost IS their moat. There is almost no way they will be able to raise prices without losing this moat. Unless they capture a monopoly (ok) with very very large online retailing volume (suspect), they won't be able to make much profit from retailing.

Of course, another way to build the moat is through a whole "Amazon brand" via other tech services such as cloud etc, but the future of that is too early to tell in my books.

valueInv

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Re: AMZN - Amazon.com Inc.
« Reply #29 on: November 04, 2012, 10:00:37 AM »
Yes, their investments show up in capex. Capex increased by $500m yoy so far this year. Operating income is negative primarily because of the impairment of the goodwill on the living social investment (that was a huge mistake).

Again, impairment of goodwill is not included in operating income. They lost $27M in operating income separate from the $169M writedown for the Living Social deal.

If you look at net income (including impairment of goodwill), they lost $274M this quarter.