Author Topic: AMZN - Amazon.com Inc.  (Read 554740 times)

Liberty

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Re: AMZN - Amazon.com Inc.
« Reply #2190 on: October 30, 2018, 06:42:27 AM »
It’s pretty easy to come up with a bloated valuation, when using bloated comps for a valuation or numbers from 10 years out. Alternatively one could put the same multiple that Mr Market gives to GOOG or FB right now (roughly a 20x PE) and get a $400/ share fair value. Take your pick.

You could do that, but would that be a better way to value it?

With more thinking, I think you can do better than that. For example, by how much is each of these companies voluntarily under-earning right now because they're investing in things that will have good returns in the future? I think each are to a certain extent, but Amazon is the king of that, taking the old Malone TCI approach of not having earnings today (though that's changing a bit) to have more growth and more earnings tomorrow, rinse and repeat.

What if Amazon decided to target growth of 10% (which would put it higher than most retailers) and just let everything else fall to the bottom line? Fewer AWS price cuts, fewer investments in new FCs and new countries and new devices and services and software and such, just optimize for earnings? How much would they earn? That's unknowable, but you can take some guesses that are probably closer to the truth than just looking at current P/E, which is depressed by large investments in things that won't pay today (like large investments in India, large capex for AWS, large investments to bring 1-day delivery to more markets, food delivery to more markets, building new software products (AI, databases, ML, etc).
« Last Edit: October 30, 2018, 12:20:37 PM by Liberty »
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Spekulatius

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Re: AMZN - Amazon.com Inc.
« Reply #2191 on: October 30, 2018, 05:22:32 PM »
It’s pretty easy to come up with a bloated valuation, when using bloated comps for a valuation or numbers from 10 years out. Alternatively one could put the same multiple that Mr Market gives to GOOG or FB right now (roughly a 20x PE) and get a $400/ share fair value. Take your pick.

You could do that, but would that be a better way to value it?

With more thinking, I think you can do better than that. For example, by how much is each of these companies voluntarily under-earning right now because they're investing in things that will have good returns in the future? I think each are to a certain extent, but Amazon is the king of that, taking the old Malone TCI approach of not having earnings today (though that's changing a bit) to have more growth and more earnings tomorrow, rinse and repeat.

What if Amazon decided to target growth of 10% (which would put it higher than most retailers) and just let everything else fall to the bottom line? Fewer AWS price cuts, fewer investments in new FCs and new countries and new devices and services and software and such, just optimize for earnings? How much would they earn? That's unknowable, but you can take some guesses that are probably closer to the truth than just looking at current P/E, which is depressed by large investments in things that won't pay today (like large investments in India, large capex for AWS, large investments to bring 1-day delivery to more markets, food delivery to more markets, building new software products (AI, databases, ML, etc).

I know it’s provocative to value AMZN this way (comparing to FB or GOOG is more a relative valuation than an absolute one), but one could make the point that both FB and GOOG have unmonetized assrgs too (I think GOOG spends ~$750M/quarter in “other bets”, so it’s not totally out of the blue. That said, I do acknowledge that AMZN does not manage the company to optimize for near term profit, but for user experience and network effects, so it is worth more than $400/ share, but is it worth $1500? I am not that sure. I feel it’s much easier to determine that FB and GOOG are undervalued using current valuations.
« Last Edit: October 31, 2018, 04:00:16 AM by Spekulatius »
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jmp8822

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Re: AMZN - Amazon.com Inc.
« Reply #2192 on: October 30, 2018, 07:54:52 PM »
Itís pretty easy to come up with a bloated valuation, when using bloated comps for a valuation or numbers from 10 years out. Alternatively one could put the same multiple that Mr Market gives to GOOG or FB right now (roughly a 20x PE) and get a $400/ share fair value. Take your pick.
voluntarily under-earning right now because they're investing in things that will have good returns in the future

Couldn't help but think of Sears and the 'voluntary' losses we all read about.  Tough to value when that is the story.

LongTermView

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Re: AMZN - Amazon.com Inc.
« Reply #2193 on: October 30, 2018, 08:51:07 PM »
but Amazon is the king of that, taking the old Malone TCI approach of not having earnings today (though that's changing a bit) to have more growth and more earnings tomorrow, rinse and repeat.
ohgodyeah!

Spekulatius

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Re: AMZN - Amazon.com Inc.
« Reply #2194 on: October 31, 2018, 04:09:21 AM »
I think SOP valuation is the wrong approach here, because the business are so intertwined. I only see AWS as a standalone business (a few years ago, the knock on this was that AMZN itself is AWS largest customer, but that is not the case any more), but we donít know how profitable AWS is and what the ROA looks like.

Amazon music and video are just part of AMXN prime. Alexa as a standalone business would probably lose money and not be worth much, the value lies in having another avenue to engage with the customer, especially prime members.  I am not even sure about advertising, because it also links in their shopping website. For me, as an AMZN customer, these are just vehicles to sell the prime membership. AMZN does a great job sucking you in and the prime membership presents a tremendous value, if you use their music and video offering and addition to shopping. if they can replicate that all over in the world (I think at least most of Europe seems to go thet way slowly) and continue finding new areas of angagement eith the customer, the network effects are going to be tremendous and basically irreplaceable and whole would be worth much more then the pieces.
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walkie518

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Re: AMZN - Amazon.com Inc.
« Reply #2195 on: October 31, 2018, 08:58:31 AM »
I think SOP valuation is the wrong approach here, because the business are so intertwined. I only see AWS as a standalone business (a few years ago, the knock on this was that AMZN itself is AWS largest customer, but that is not the case any more), but we donít know how profitable AWS is and what the ROA looks like.

Amazon music and video are just part of AMXN prime. Alexa as a standalone business would probably lose money and not be worth much, the value lies in having another avenue to engage with the customer, especially prime members.  I am not even sure about advertising, because it also links in their shopping website. For me, as an AMZN customer, these are just vehicles to sell the prime membership. AMZN does a great job sucking you in and the prime membership presents a tremendous value, if you use their music and video offering and addition to shopping. if they can replicate that all over in the world (I think at least most of Europe seems to go thet way slowly) and continue finding new areas of angagement eith the customer, the network effects are going to be tremendous and basically irreplaceable and whole would be worth much more then the pieces.

We have an understanding of what AWS can become based on studying older business models like IBM to Oracle.  The number of mainframes that will convert to client-server is low.  The number of mainframes that will convert to cloud or hybrid over the next decade is high and can be estimated.  This can give you a sense for how much runway there is.

Given that IBM is buying RedHat and RedHat has deep ties with Oracle, I bet IBM and Oracle talk about merging to combat AWS.  Obviously, neither company is doing a good job of it alone.

You're criticizing an approach without coming up with a solution.

A DCF valuation for AMZN doesn't work without making extraordinary assumptions because revenue, and cash flow, growth is so high.

An asset based valuation doesn't work because the value of cash flows are far greater than invested capital, and there is substantive runway for all of the businesses. 

Amazon is a franchise with a lot of moving parts working together to build a greater, bigger business.  The diversification of revenue is breathtaking.  SOTP is the only way to get at those moving parts and freeze time. 
« Last Edit: October 31, 2018, 09:07:37 AM by walkie518 »

Gregmal

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Re: AMZN - Amazon.com Inc.
« Reply #2196 on: October 31, 2018, 09:04:28 AM »
Just my 2c but it seems like this is a great company at a horrible price that people who missed out are trying to justify buying on a relatively minor pullback. Kind of like FB except FB is an OK company at a more reasonable price, so essentially same dilemma.

Liberty

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Re: AMZN - Amazon.com Inc.
« Reply #2197 on: October 31, 2018, 09:15:54 AM »
Itís pretty easy to come up with a bloated valuation, when using bloated comps for a valuation or numbers from 10 years out. Alternatively one could put the same multiple that Mr Market gives to GOOG or FB right now (roughly a 20x PE) and get a $400/ share fair value. Take your pick.
voluntarily under-earning right now because they're investing in things that will have good returns in the future

Couldn't help but think of Sears and the 'voluntary' losses we all read about.  Tough to value when that is the story.

Except if you think about it a second longer, it's not the same thing at all.
"Most haystacks don't even have a needle." |  I'm on Twitter  | Interesting podcast on aging research

rkbabang

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Re: AMZN - Amazon.com Inc.
« Reply #2198 on: November 01, 2018, 07:04:02 AM »
Amazon undercuts Casper with its own new mattresses
https://www.cnn.com/2018/10/31/business/amazon-mattress-casper-beds/index.html

"the company has insight into Casper, Tuft & Needle, and Purple customers' shopping patterns on the site. It has combed through its ratings and reviews to learn rival products' flaws and what prices can sway customers"

Jurgis

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Re: AMZN - Amazon.com Inc.
« Reply #2199 on: November 01, 2018, 08:11:37 AM »
Oh no, they are going to the mattresses.
"Before you can be rich, you must be poor." - Nef Anyo
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