Author Topic: AMZN - Amazon.com Inc.  (Read 651044 times)

fareastwarriors

  • Hero Member
  • *****
  • Posts: 3530
Re: AMZN - Amazon.com Inc.
« Reply #330 on: December 17, 2013, 11:11:38 PM »


ajc

  • Guest
Re: AMZN - Amazon.com Inc.
« Reply #331 on: December 20, 2013, 06:51:08 AM »
When you're Amazon, you don't need profits. ;)

I don't think that's a very useful way of looking at Amazon's approach to business, in fact their 'unprofitability' is probably one of their most important strengths.

Still, it's always a joke I appreciate reading because you're right that for most companies it would be just as bad as it sounds.

valueInv

  • Guest
Re: AMZN - Amazon.com Inc.
« Reply #332 on: December 20, 2013, 07:20:20 AM »
When you're Amazon, you don't need profits. ;)

I don't think that's a very useful way of looking at Amazon's approach to business, in fact their 'unprofitability' is probably one of their most important strengths.

Still, it's always a joke I appreciate reading because you're right that for most companies it would be just as bad as it sounds.

Amazons greatest strength is the lack of people willing to do a financial analysis.

JAllen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 622
Re: AMZN - Amazon.com Inc.
« Reply #333 on: December 20, 2013, 07:39:49 AM »
When you're Amazon, you don't need profits. ;)

I don't think that's a very useful way of looking at Amazon's approach to business, in fact their 'unprofitability' is probably one of their most important strengths.

Still, it's always a joke I appreciate reading because you're right that for most companies it would be just as bad as it sounds.

Amazons greatest strength is the lack of people willing to do a financial analysis.


What are your conclusions performing your financial analysis? 


Some of mine are:
  • Amazon generates consistent operating cash flows despite cash operating cash flow expenses that reduce them (e.g. digital video licensing fees).  For us, cash flows matter more than GAAP income.  The company emphasizes that this is how it views its finances as well.
  • Amazon intentionally overstates many expenses.  Some are spelled out in the 10-Ks, others require thought
  • The company averaged a high single-digit free cash flow margin in the three years prior to its greater-than-sales growth rate fulfillment center expansion
  • During the years in which Amazon had high single digit free cash flow margins, its gross margins were considerably below where they currently are. (~22% versus ~28%)
  • All four of Amazon's businesses are leaders and are tiny in relation to their potential eventual size (e.g. Amazon's total U.S retail sales are ~1% of addressable sales; WMT's are ~10% despite much fewer SKUs)


valueInv

  • Guest
Re: AMZN - Amazon.com Inc.
« Reply #334 on: December 20, 2013, 09:58:33 AM »
[

So think about this:  all of these guys are buying from ODMs.  DELL and HPQ are ODM buyers as well -- it's just that they make a retail profit on servers at this time.  They're actually in a better position than FB, AMZN, and GOOG in terms of buying power.  That means they can be low cost providers for non-public cloud solutions (think about verticals like healthcare or energy), and they can also provide their own public clouds.  Because of projects like OpenStack and OpenCompute.   

In order for these guys to totally lose out, you must assume that none of them will provide public cloud solutions on par with the current public cloud big dogs and that everyone will outsource to the public cloud -- or at a higher level, to SaaS providers.  I contend that because of projects like Open Compute and OpenStack, the public cloud playing field will be leveled over time, with resources, scale, and enterprise relationships starting to matter more and more in terms of competitiveness in the market.  I also think that there will always be enterprises who will go with managed or unmanaged private/hybrid cloud solutions.  Because these guys want control over their data, they want to outsource cloud infrastructure management to vendors with expertise, and because it actually costs less to buy than to rent in most cases.

In other words, "retail" server sales to third parties may shrink, but that doesn't mean that the big guys don't profit from their position in the long run, particularly when you see value shifting to the software and services bundled with the cloud hardware (again, I agree with the notion of commoditization).  That's exactly the approach that the big three are taking.

And here is Openstack in the real world:
http://blogs.gartner.com/alessandro-perilli/why-vendors-cant-sell-openstack-to-enterprises/

Re:Invent was a message to the ecosystem:
http://gigaom.com/2013/11/20/aws-gets-respect-but-also-fear-and-loathing-in-las-vegas/

More on Openstack:

http://gigaom.com/2013/12/20/backbreaking-openstack-migrations-hinder-enterprise-upgrades/

ajc

  • Guest
Re: AMZN - Amazon.com Inc.
« Reply #335 on: December 20, 2013, 10:03:51 AM »
Amazons greatest strength is the lack of people willing to do a financial analysis.

Unfortunately valueInv, I think you're confusing the stock price with the roughly definable intrinsic value of the underlying business.

How many people do or don't do a financial analysis of the business really has very little to do with its various internal strengths as a company (of which its emphasis on tax-efficiency is one).
I'm not sure if that's a fact which you're at all aware of.

Anyway, I just thought it might be helpful for me to point it out since you seem to be mixing up the extrinsic with the intrinsic in terms of business value there.

valueInv

  • Guest
Re: AMZN - Amazon.com Inc.
« Reply #336 on: December 20, 2013, 10:16:42 AM »
Amazons greatest strength is the lack of people willing to do a financial analysis.

Unfortunately valueInv, I think you're confusing the stock price with the roughly definable intrinsic value of the underlying business.

How many people do or don't do a financial analysis of the business really has very little to do with its various internal strengths as a company (of which its emphasis on tax-efficiency is one).
I'm not sure if that's a fact which you're at all aware of.

Anyway, I just thought it might be helpful for me to point it out since you seem to be mixing up the extrinsic with the intrinsic in terms of business value there.

Oh, I'm aware of it all right. If people started asking the right questions, Bezos wouldn't be able to do all the things he is doing right now. That would impact what happens internally and the intrinsic value.

Palantir

  • Hero Member
  • *****
  • Posts: 2620
Re: AMZN - Amazon.com Inc.
« Reply #337 on: December 20, 2013, 10:23:59 AM »
JAllen, do you believe AMZN is undervalued or misunderstood? Given their stock performance, I have a hard time believing that the mainstream investment community (note: not value investors) is skeptical of their business model rather rate it very highly.
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT

jschembs

  • Sr. Member
  • ****
  • Posts: 353
Re: AMZN - Amazon.com Inc.
« Reply #338 on: December 20, 2013, 11:34:40 AM »
I am a big fan of AMZN the company, and my wife works in recruiting right there in South Lake Union, but I shudder when I hear people gush about how this company needs to be valued differently because of its investment decisions focused on growth and the future, which somehow render EBIT and other P&L based measures meaningless.

I have no position in the stock (save for minor long exposure via my wife's stock option plan), so I have no axe to grind. Further, I always begin my review of a business at the cash flow statement, so I appreciate the value of a company's ability to generate sustainable cash flow for shareholders. However, stating that "operating cash flow is superior to net income" without focusing on the components of that cash flow, their persistence, and ancillary impacts on shareholders is important.

From CapIQ, AMZN generated $4.98 billion of OCF for LTM ending 9/30. Of this, $132 MM was good old "net income." $2.5 BN (or more than 50% of OCF) represent addbacks for non-cash depreciation and amortization. I think there's a misconception that AMZN, RAX, GOOG, and other folks heavily involved in the cloud are somehow asset light, but the equipment to provide those services is very expensive and wears out rapidly. Thus, I would be shocked to begin seeing AMZN's capex requirements moderate significantly. Given the company had capex of $4.6 BN during the same period, it is very hard to argue D&A won't need ongoing replacement, and thus those non-cash adjustments to net income may not really accrue to shareholders over the long term as free cash.

Another $1 BN of AMZN's OCF relates to more non-cash addbacks for stock compensation. I presume no one on this board is naive enough to think that expense doesn't have a far less visible but deleterious effect on shareholder value via dilution.

Lastly, AMZN's ability to run its operations with negative working capital generated an incremental $1 BN (approx) in OCF. This, however, is a transitory source of cash that can easily become a use of cash if/when growth slows.

So we have a business generating nearly $5 BN in operating cash flow. $4.6 BN of that is consumed via capex. The lion's share of their OCF comes from three sources (D&A, stock comp expenses, and working capital) that do not provide a shareholder with reasonable assurance they can capture their proportionate share of those cash flows over the long term.

valueInv

  • Guest
Re: AMZN - Amazon.com Inc.
« Reply #339 on: December 20, 2013, 01:32:41 PM »
I am a big fan of AMZN the company, and my wife works in recruiting right there in South Lake Union, but I shudder when I hear people gush about how this company needs to be valued differently because of its investment decisions focused on growth and the future, which somehow render EBIT and other P&L based measures meaningless.

I have no position in the stock (save for minor long exposure via my wife's stock option plan), so I have no axe to grind. Further, I always begin my review of a business at the cash flow statement, so I appreciate the value of a company's ability to generate sustainable cash flow for shareholders. However, stating that "operating cash flow is superior to net income" without focusing on the components of that cash flow, their persistence, and ancillary impacts on shareholders is important.

From CapIQ, AMZN generated $4.98 billion of OCF for LTM ending 9/30. Of this, $132 MM was good old "net income." $2.5 BN (or more than 50% of OCF) represent addbacks for non-cash depreciation and amortization. I think there's a misconception that AMZN, RAX, GOOG, and other folks heavily involved in the cloud are somehow asset light, but the equipment to provide those services is very expensive and wears out rapidly. Thus, I would be shocked to begin seeing AMZN's capex requirements moderate significantly. Given the company had capex of $4.6 BN during the same period, it is very hard to argue D&A won't need ongoing replacement, and thus those non-cash adjustments to net income may not really accrue to shareholders over the long term as free cash.

Another $1 BN of AMZN's OCF relates to more non-cash addbacks for stock compensation. I presume no one on this board is naive enough to think that expense doesn't have a far less visible but deleterious effect on shareholder value via dilution.

Lastly, AMZN's ability to run its operations with negative working capital generated an incremental $1 BN (approx) in OCF. This, however, is a transitory source of cash that can easily become a use of cash if/when growth slows.

So we have a business generating nearly $5 BN in operating cash flow. $4.6 BN of that is consumed via capex. The lion's share of their OCF comes from three sources (D&A, stock comp expenses, and working capital) that do not provide a shareholder with reasonable assurance they can capture their proportionate share of those cash flows over the long term.
Thank you, good post.