Author Topic: AMZN - Amazon.com Inc.  (Read 619822 times)

dwy000

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Re: AMZN - Amazon.com Inc.
« Reply #430 on: May 30, 2014, 09:54:59 PM »
What's the basis for the assumption that opex levels can (and will) return to the levels of 5 years ago?  As a % of revenues opex has been rising for 5 years now. 

Also, shouldn't you subtract out stock comp ($1.2bn last year).  It's not cash but it ultimately comes out of the shareholder's pocket. And it's been growing rapidly.


JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #431 on: May 31, 2014, 12:19:06 AM »
What's the basis for the assumption that opex levels can (and will) return to the levels of 5 years ago?  As a % of revenues opex has been rising for 5 years now. 


Growth spending went from less than sales growth rate to three times the sales growth rate.  So from 2002-2009 FC space increased at a CAGR of 20%.  Since then it's increased at almost 60%.  This is a proxy for overall spending.  This is why I believe that OEM is inflated right now, not to mention the fact that AMZN should have a lower OEM than WMT long-term.  WMT's OEM is 18-19%.  I just don't see how AMZN's will not be lower without all of the expensive retail real estate.  They do exactly the same thing: buy tons of stuff from suppliers and deliver it to customers, except one company uses only much cheap FC space, that is increasingly automated.  The other uses FC space, but then keeps some of it in expensive buildings in dense cities and has a ton of employees running around managing that inventory and moving it around.  This is my basis for believing that AMZN will have sub-WMT OEMs.

JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #432 on: May 31, 2014, 12:24:58 AM »
Also, shouldn't you subtract out stock comp ($1.2bn last year).  It's not cash but it ultimately comes out of the shareholder's pocket. And it's been growing rapidly.


Please read my previous comments about accelerated expensing of stock-comp.  It's a discretionary accelerated expense method that AMZN chooses to take to maximize expenses (clearly stated in 10-Ks).  Because stock-comp expense is accelerated and there are also forfeitures (not all employees stay four years for full vesting; AMZN's vesting schedule is 5, 15, 40, 40% FYI), stock-comp in any year is overstated, but by how much I'm not certain of.

One can easily account for stock-comp accurately by just diluting your FCF projections per share by some X% growth rate of shares outstanding per year.  I'd call it 1% or so.

AMZN has quite a proclivity of buying back shares at opportune times, so I'm hoping that gets to happen in a material way about every five years which could offset some of the dilution.

dwy000

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Re: AMZN - Amazon.com Inc.
« Reply #433 on: May 31, 2014, 08:58:48 AM »
Hi JAllen,

The accelerated spending on the FC's and other growth initiatives would be capitalized (as is much of their software spending) so there shouldn't be much one-off growth spending in the opex number.  As implied, this should just reflect ongoing operating costs. Are you aware of them putting one off growth costs in here?  If so, can you point that out for me?

On the share expense, yes, they are straightlining the expense and back end weighting the issuances.  Maybe I'm looking at this wrong but that's a bad thing in a rising share price environment. For example, if they award $100 of shares that vest 10-10-40-40 but expense them 25-25-25-25, the expense is higher in the first two years but then that reverses in later years. But more importantly the expense number is based off the share price in the first year (say $200) but with a rising share price the majority of those shares are issued at the higher price (say $300) so effectively they are under expensing vs the cost to shareholders of those new shares coming on the market.  Either way, over a 4 year cycle the expense differential will even out - and I think you have a longer term view than 4 years.

dwy000

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Re: AMZN - Amazon.com Inc.
« Reply #434 on: May 31, 2014, 09:09:46 AM »
Sorry, forgot to add:  my point on excluding share based comp was not about how it is expensed but the fact that it is dilutive unless you use a similar amount of cash (or more in a rising share environment) to repurchase the stock being issued.

JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #435 on: May 31, 2014, 09:57:16 AM »
Hi JAllen,

The accelerated spending on the FC's and other growth initiatives would be capitalized (as is much of their software spending) so there shouldn't be much one-off growth spending in the opex number.  As implied, this should just reflect ongoing operating costs. Are you aware of them putting one off growth costs in here?  If so, can you point that out for me?

On the share expense, yes, they are straightlining the expense and back end weighting the issuances.  Maybe I'm looking at this wrong but that's a bad thing in a rising share price environment. For example, if they award $100 of shares that vest 10-10-40-40 but expense them 25-25-25-25, the expense is higher in the first two years but then that reverses in later years. But more importantly the expense number is based off the share price in the first year (say $200) but with a rising share price the majority of those shares are issued at the higher price (say $300) so effectively they are under expensing vs the cost to shareholders of those new shares coming on the market.  Either way, over a 4 year cycle the expense differential will even out - and I think you have a longer term view than 4 years.



I wrote about how AMZN also has growth expenses, not every investment is capitalized.  All of the non-shipping Prime benefits are expenses - digital video licensing, giving books away to Prime members, etc...


"Another thing that AMZN does well is to invest using expenses, not always capex, which as you know are immediately tax-deductible and help maximize long-term cash flows by minimizing taxes (remarkably similar to John Malone's modus operandi actually), the only thing Bezos cares about.  So the market thinks AMZN's underlying operations aren't profitable at all when in reality the profit is being obscured by the company's massive growth expenses, much of which are growth expenses.  A great example is the significant sum AMZN is now spending on HBO shows."

dwy000

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Re: AMZN - Amazon.com Inc.
« Reply #436 on: May 31, 2014, 01:47:27 PM »
I don't think that's correct.  According to the 10K, not only are content costs put on the balance sheet and expensed (that would include HBO payments) but the expense is consider a cost of goods sold, not an operating expense.


txlaw

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Re: AMZN - Amazon.com Inc.
« Reply #437 on: May 31, 2014, 03:04:35 PM »
This is an interesting read by the founder of Bonobos.  The post is essentially about Amazon and how one can or can't compete with it.  Nice to read an industry-insider's perspective and not an investor's or journalist's.


https://medium.com/what-i-learned-building/d233f02d52a5

This is an interesting read. 

However, there is a company I follow (and am invested in) called OSTK that does a pretty damn good job of making real cash profits, despite being an e-commerce company. 

Spekulatius

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Re: AMZN - Amazon.com Inc.
« Reply #438 on: May 31, 2014, 04:44:20 PM »
Quote
I wrote about how AMZN also has growth expenses, not every investment is capitalized.  All of the non-shipping Prime benefits are expenses - digital video licensing, giving books away to Prime members, etc

I don't get is. Why is the real cash that they spent on prime members or on HBO considered an investment by some? It's money that goes out the door to deliver a certain service. There is nothing tangible left after that spending, or do you believe that spending let's say 100M$ in cash for HBO creates higher profits in the future?

I agree it will entice members to sign up for the service as long as they offer it, but if they drop the service, the same members that like it for their very reason, would be likely to drop amazon prime.

If anything, offering something like HBO to Amazon prime members creates a liability to offer it in the future. I think the beneficiary of deal is HBO which likely get's a 100M$/year annuity.
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Palantir

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Re: AMZN - Amazon.com Inc.
« Reply #439 on: May 31, 2014, 09:45:19 PM »
JAllen, what do you think of their growth slowing down? Do you expect the rate of decline to moderate, if so what are you estimating as your long term rate?


Their international operations seem comparatively slow, but I guess that's understandable as it does seem a very US-centric firm.
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