Author Topic: AMZN - Amazon.com Inc.  (Read 514523 times)

Cardboard

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AMZN - Amazon.com Inc.
« on: November 02, 2012, 01:55:07 PM »
"You had Amazon.com last week missing on quarterly earnings, sales and Q4 forecasted sales. I should not say missing earnings because they generated losses. The stock went down briefly after hours then up huge the next day. If it had been Chipotle or any other momo stock it would have been down 20%. Incomprehensible. They had to find some excuse for the move so they talked about some mysterious beat on operating margins. I guess it had to be NA adjusted operating margins!

I actually think that Amazon is a fraud. If the stock market did not keep it high, they would have to show profits like Target, Walmart, BestBuy or any other retailer. Retailing is still their main business. Now, that the stock market keeps rewarding them just for showing sales growth, they can keep selling product at cost or below cost. Isn't illegal? With the sales tax advantage disappearing and them building warehouses everywhere to shorten delivery times, there is really no difference anymore in their retailing business with other brick and mortar retailers. There are also other issues, but that is for another discussion or thread."

Well, here is the thread! This company should be shorted into oblivion by Einhorn, Chanos and all others if they had balls. The stock market allowing this company to sell its products at a loss is creating huge issues for honest companies such as Wal-Mart, Target, Best Buy and many others who have to sell their goods at a profit to offer a return to their shareholders. Even Overstock.com has to show a profit. Apple is also suffering from this scheme since they have to sell their IPads at a profit to deliver to their shareholders. Apple's price to earnings ratio is around 11.5 now without even factoring in the very large cash pile and they are growing as fast as Amazon sales. Amazon on the other hand can sell its Kindles at a loss or near breakeven to generate sales growth and still enjoy an increasing stock price. The issue is that this goes for all their products. All of that is based on gaining market share and eventually generating massive free cash flows as claimed by Mr. Bezos.

The math simply does not add up. We are talking about a $100 billion market cap retailer with around $62 billion in sales. This is as big as Target now in terms of sales. Moreover, they are already worldwide. As we have seen recently, the rate of sales growth is coming down despite their large investments in more distribution centers and their venturing into more and more fields. If it was a conglomerate, people would trade it at a discount until management decided to re-focus in certain areas. Regarding growth, they will bump against the law of large numbers as Wal-Mart did once it reached such sales number. I think we are at the beginning of this process.

If it was a small tech company or one with a truly innovative offering, I could understand the stock to trade higher based on sales growth and the promise of future profits at high margins. However, here we are talking about a company with a market cap of $100 billion plus, generating losses and with very low operating margins, and that is when they are visible. It is retailing after all. Try finding a $100 billion market cap showing no profit on on-going basis. The disclosure on top of that is abysmal. I challenge you to tell me how much debt they had on their balance sheet as of Sept 30. While it may not be so important a number to know, for now anyway, this kind of opacity is everywhere in their disclosure. Analysts have complained about it, but they still put out very attractive targets for the stock. Why exactly remains a mystery to me.

Their cloud division is another joke. While it is used by many startups and others, it does not appear to be generating much profits either. The game is all about generating more and more revenues at break-even. It kills competition and is only possible because the stock market rewards them doing that.

The music will stop some day. Will it be due to the collection of sales taxes, retailers matching their prices, an inevitable slow down in sales growth, the stock market finally taking a show me approach or some force finally telling Amazon that enough is enough?

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beerbaron

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Re: AMZN - Amazon.com Inc.
« Reply #1 on: November 02, 2012, 02:04:37 PM »
Where does everybody go first when they want to buy something online? Amazon

Amazon has a near monopoly on the online retail world. I'd stay away from the bull and bear side if I were you.

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compoundinglife

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Re: AMZN - Amazon.com Inc.
« Reply #2 on: November 02, 2012, 02:23:49 PM »
Amazon Web Services is reason enough to not short this stock. You say its a joke, but its really not. They have a moat in cloud services that no one is currently anywhere near catching up on. It may only be a 1B business today but this a market that is just gaining momentum and they are currently poised to be the dominant public cloud provider for the for seeable future.

Even at todays valuation I would be shocked to see D.E. short Amazon. I think you raise some valid points in your post, but betting against AMZN and Bezos is IMO a very bad idea.


Grenville

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Re: AMZN - Amazon.com Inc.
« Reply #3 on: November 02, 2012, 02:24:35 PM »
Thanks for starting the thread. I'll offer these two quotes from the Amazon shareholder letters for now and add more color with time.

As the famed investor Benjamin Graham said, ‘‘In the short term, the stock market is a voting machine; in the long term, it’s a weighing machine.’’ Clearly there was a lot of voting going on in the boom year of ’99—and much less weighing. We’re a company that wants to be weighed, and over time, we will be—over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company. → 2000 letter

If you could know for certain just two things--a company’s future cash flows and its future number of shares outstanding--you would have an excellent idea of the fair value of a share of that company’s stock today. (You’d also need to know appropriate discount rates, but if you knew the future cash flows for certain, it would also be reasonably easy to know which discount rates to use.) It’s not easy, but you can make an informed forecast of future cash flows by examining a company’s performance in the past and by looking at factors such as the leverage points and scalability in that company’s model. Estimating the number of shares outstanding in the future requires you to forecast items such as option grants to employees or other potential capital transactions. Ultimately, your determination of cash flow per share will be a strong indicator of the price you might be willing to pay for a share of ownership in any company. → 2001 letter

rimm_never_sleeps

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Re: AMZN - Amazon.com Inc.
« Reply #4 on: November 02, 2012, 02:46:36 PM »
I remember 5 years ago somebody I knew was shorting amazon for the exact same reasons listed in the op. I told him he was nuts.

Hoodlum

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Re: AMZN - Amazon.com Inc.
« Reply #5 on: November 02, 2012, 02:50:30 PM »
Amazon reminds me of CRM.  You know it can't go on forever but the stock price still keeps chugging along.  I have decided to avoid these type of stocks from both sides.

ItsAValueTrap

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Re: AMZN - Amazon.com Inc.
« Reply #6 on: November 02, 2012, 03:40:23 PM »
Well there are a lot of people out there (myself included) that think that online shopping will be much bigger than it is today. 

Amazon may dominate with its economies of scale.  Its IT development costs are mostly fixed.  Its costs of dealing with regulations is mostly fixed.  I live in Canada... buying from Amazon US (not the Canadian Amazon) is cool because they have a huge selection and you don't have to pay brokerage fees (in the past, brokerage fees inhibited a lot of cross-border online shopping... so what you would do is go to eBay and have the seller mark things as gifts under $20; eBay's selection is limited).  If economies of scale were the only thing that mattered, then one might expect Amazon to dominate online shopping not just in books.  I recently bought a kettle and 2 other non-book items off Amazon.ca.

*No position.  The valuation is high I agree.
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LC

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Re: AMZN - Amazon.com Inc.
« Reply #7 on: November 02, 2012, 03:43:58 PM »
Two points I want to make:

1. How difficult is it to setup and operate as a cloud provider? Where is their advantage versus Google/Microsoft/Oracle? (I honestly have no knowledge in this area, it is a genuine question)

2. I agree regarding taking a short (or long) position. It seems overvalued but as Cardboard mentions when will the correction happen and how drastic will it be? It is a very risky position to enter and maintain.

My stance is the same as Hoodlum's.

Amazon Web Services is reason enough to not short this stock. You say its a joke, but its really not. They have a moat in cloud services that no one is currently anywhere near catching up on. It may only be a 1B business today but this a market that is just gaining momentum and they are currently poised to be the dominant public cloud provider for the for seeable future.

Even at todays valuation I would be shocked to see D.E. short Amazon. I think you raise some valid points in your post, but betting against AMZN and Bezos is IMO a very bad idea.
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compoundinglife

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Re: AMZN - Amazon.com Inc.
« Reply #8 on: November 02, 2012, 04:05:24 PM »
Two points I want to make:

1. How difficult is it to setup and operate as a cloud provider? Where is their advantage versus Google/Microsoft/Oracle? (I honestly have no knowledge in this area, it is a genuine question)

To operate at the scale that AMZN operates at its very hard. I think this is illustrated by the fact that no one offers the same breadth of features that they provide and they are constantly launching new services and features creating a huge gap between AWS and its competitors. 

To get an idea of their size:

http://gigaom.com/cloud/just-how-big-is-the-amazon-cloud-anyway/


Quote
2. I agree regarding taking a short (or long) position. It seems overvalued but as Cardboard mentions when will the correction happen and how drastic will it be? It is a very risky position to enter and maintain.

My stance is the same as Hoodlum's.

Amazon Web Services is reason enough to not short this stock. You say its a joke, but its really not. They have a moat in cloud services that no one is currently anywhere near catching up on. It may only be a 1B business today but this a market that is just gaining momentum and they are currently poised to be the dominant public cloud provider for the for seeable future.

Even at todays valuation I would be shocked to see D.E. short Amazon. I think you raise some valid points in your post, but betting against AMZN and Bezos is IMO a very bad idea.

bargainman

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Re: AMZN - Amazon.com Inc.
« Reply #9 on: November 02, 2012, 08:17:04 PM »
I don't understand the point about "The stock market allowing this company to sell its products at a loss is creating huge issues for honest companies such as Wal-Mart, Target, Best Buy".  The stock market at this stage is probably irrelevant to the company.  They don't use the market to raise equity or debt at this stage I don't think (correct me if I'm wrong, I guess I can't say that definitively).

I would think long and hard about shorting these guys.  I'm not saying they aren't overvalued by almost every standard metric, but Jeff Bezos is not the same as the CRM CEO.  He used to work for a hedge fund, and he understands the capital markets very very well.  Take a read through some of these articles and interviews:

http://www.zurb.com/article/831/jeff-bezoss-10000-year-clock-and-thinking

Quote
It does fit into my view. Our first shareholder letter, in 1997, was entitled, 'It's all about the long term.' If everything you do needs to work on a three-year time horizon, then you're competing against a lot of people. But if you're willing to invest on a seven-year time horizon, you're now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We're willing to plant seeds, let them grow'and we're very stubborn. We say we're stubborn on vision and flexible on details.

http://www.wired.com/magazine/2011/11/ff_bezos/all/1

They are very disruptive in tech, and a big threat to MSFT, Google, and Apple for this simple reason:

Quote
Bezos: We think it’s a unique approach in the marketplace—premium products at nonpremium prices. We’re a company very accustomed to operating at low margins. We grew up that way. We’ve never had the luxury of high margins, there’s no reason to get used to it now.

The low margins and the combination of many different businesses give them immense power.  One simple example is their servers.  Being in retail they have massive spikes in usage in December, but the rest of the year they have a lot of free bandwidth. So they have opened up all their servers to outside users.  Before they did that all those cycles were sitting idle during the off time.  But since it's essentially unused capacity they can sell that server time incredibly cheap.  There is massive stuff going on in their cloud these days.  I was at a presentation where they talked about a large biotech firm which needed to run a massive 2 month simulation using over 10,000 CPU cores.  Well they set it up one afternoon, paid Amazon a few thousand per hour or day (can't remember the price), and had 10,000 computers running on the simulation in a matter of hours.  Then when it was done, they stopped and that was that!  Imagine in the past what that would have taken?  They would have had to set up their own data center, buy and set up 10,000 computers + all the software required, and then at the end of it they would have 10,000 idle computers till the next big project.  Now, this is becoming more common practice, but the thing that gives amazon and advantage is their price.  Also their infrastructure is very interesting.  There was a famous post by a googler about this:

http://www.pcmag.com/article2/0,2817,2394561,00.asp

The post is huge and worth reading if you're a techie, but the article above summarizes it.

http://online.wsj.com/article/SB10001424052702304543904577395164138218638.html

This guy is building a clock to last 10,000 years.  He's very long term oriented.  But he's no dummy when it comes to the stock market.