Author Topic: AMZN - Amazon.com Inc.  (Read 651722 times)

saltybit

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Re: AMZN - Amazon.com Inc.
« Reply #560 on: July 24, 2014, 09:22:26 PM »
Amazon to Make It Easier to Buy Its Ads With Self-Serve Tool

http://adage.com/article/digital/amazon-make-easier-buy-ads-serve-tool/294243/

Quote
Amazon doesn't disclose its ad revenue, but eMarketer estimates it pulled in $707.7 million from advertisers last year.


JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #561 on: July 24, 2014, 11:41:00 PM »
The "invest for the long term" thesis may continue to hold for some, but the time frame to convert to "normalized" operating earnings appears to be getting further away not closer.


But we've only been talking about it for a single quarter - so being disappointed or surprised that they didn't make money this quarter (not saying you are but others are) is just flatly ignoring what the company repeatedly states over and over.  Some of us are thinking in terms of 40 quarters.  There was frankly nothing really to take away from this quarter except for AWS price declines, AWS usage, Prime sub. strength and growth pretty much the same as it has been for a few years.


You either think long-term and get that and believe that that's how they're investing or you don't.  And it seems that the vast majority of individuals don't, and that's of course fine.


I on the other hand am thrilled with how they're running their business, the underlying fundamentals and will probably buy some more tomorrow as the rest of our portfolio has gone up recently so AMZN has shrunk to just a massive position  ;D

It seems that the truly long-term approach is so unique that it's nearly impossibly to grasp.  This is what makes it so good for those that believe in it and are practitioners of it.

JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #562 on: July 25, 2014, 12:05:33 AM »
So we know that AMZN doesn't show much GAAP/net/headline profitability, we can all agree on that.


I think we could also agree that AMZN is consistently growing sales at ~22% and gross profit at ~33%.  I don't know what I will do if we disagree on this...


Here's the question: Do you see something on the horizon that will cause AMZN's sales growth to change?  Do you see an offering that is nearly as good or better?  Is there a retailer with a comparable selection, consistently competitive prices, amazing service, and free two-day shipping and getting faster?  Is AMZN's approach on the verge of being disrupted like RIMM was in 2007-2008?


I ask because it would be hard for me to have the cognitive dissonance of something like 'This stock is unattractive to me because it doesn't show current profits but I can't see anything on the horizon that will cause its sales growth to slow or reverse'.  Those two things wouldn't sit well in my head.  You can be disappointed all you want with AMZN not generating current income, and that's understandable - I totally agree that buying stocks for 5X current net income is super fun - but don't you think that at some point with the continued sales growth and expansion in their 3 main (large) businesses that they will be profitable at some point, perhaps not super far into the future?  How can you believe one and not the other? 


Or does it come back to the long-term/short-term perspective thing again?  This seems to be the insistence that stocks investors own have to show positive net income now or soon/on the horizon.



JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #563 on: July 25, 2014, 12:30:41 AM »

Another question I have is: Do you believe that AMZN is truly the only company on the planet that can't and won't generate material profitability with hundreds of billions of dollars of sales? 

Here's a company that says they don't care about current profitability, they're investing heavily - more heavily than they did for a decade prior to this current period.  And they continually harp on the fact that they're not managing the business for current earnings and they also don't indeed generate much current earnings.  They do and say all of these little things like put the cash flow statement first and republish the first annual letter that says 'I will always take the cash flows over profit'. 

The implication from naysayers are that even though they say they're intentionally managing the business this way, they're actually lying and just covering something up for some reason (people have actually stated things like this with more euphemistic words) .  Amazon management isn't credible.  They don't have a massive track record of success.  This isn't the way to run a business.  Amazon doesn't have any sort of moat and that if they raised their prices at all people would flee the company.

They've managed their business this way and said these things for years, yet it's a surprise that they aren't generating income. What's more is that not many people seem to believe that it's ever possible. 

Why don't more people believe Bezos, someone who has been fabulously successful at what he's put his mind to? He's managed to disrupt and dominate no less than three industries in 20 years.  This is an incredible feat.  How many others have disrupted more than one?  You can count them on one hand.  But no one believes that his company will be profitable?  This astounds me.

Wouldn't it be an unprecedented occurrence for a company to consistently not generate income on this level of sales?  It's not a lack of scale, is it?  They have 100 fulfillment and sortation centers (which are yet another recently discovered use of many hundreds of millions of dollars of capex over the last couple of years). 

The largest e-commerce company in the world (that actually fulfills orders) just can't generate a profit because users only use it because its prices are so low (which is disproved by gross margins of 31% versus WMT's 24%) and that if they raised prices 5% they would suddenly start trying to buy all of their stuff on walmart.com or deciding to visit multiple stores to purchase what they need?

Is it a coincidence that AMZN doesn't generate a profit and management says they don't currently intend to or is it possible that this is actually what they are doing?

Is AMZN's long-term strategy working or not?  I think it is.  I think it would be a huge mistake to raise prices at AWS or elsewhere.  Why not widen the moat instead?

Late night rant over...

JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #564 on: July 25, 2014, 12:34:34 AM »
Ok one more.


One thing we haven't discussed is how AMZN sells e-books for less than what they cost (so negative gross margins on these sales).  This is to build and widen the e-book moat.  This is paradoxically a smart thing to do.  Publishing is moving towards AMZN.  Amazon pays authors way better than the legacy publishing houses do.


This is another thing that artificially depresses current income but is designed to build a long-term moat.  This is one of the many reasons there's not much GAAP income.


Does anyone think this is a wrong approach?   If you do, that's fine, I know it's hard to truly think with the long-term in mind.  That's why there's so much controversy surrounding AMZN. 

Palantir

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Re: AMZN - Amazon.com Inc.
« Reply #565 on: July 25, 2014, 06:34:12 AM »
Allah be praised!

AMZN is down 11%, need to buy more.

I feel analysts might be focusing on the Cloud number. That is interesting.
« Last Edit: July 25, 2014, 06:40:02 AM by Palantir »
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT

Vish_ram

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Re: AMZN - Amazon.com Inc.
« Reply #566 on: July 25, 2014, 06:46:52 AM »
Ok one more.


One thing we haven't discussed is how AMZN sells e-books for less than what they cost (so negative gross margins on these sales).  This is to build and widen the e-book moat.  This is paradoxically a smart thing to do.  Publishing is moving towards AMZN.  Amazon pays authors way better than the legacy publishing houses do.


This is another thing that artificially depresses current income but is designed to build a long-term moat.  This is one of the many reasons there's not much GAAP income.


Does anyone think this is a wrong approach?   If you do, that's fine, I know it's hard to truly think with the long-term in mind.  That's why there's so much controversy surrounding AMZN.


Once they built the moat and became a monopoly, the Govt may step in. They'll end up without getting the return that they sought for.

dwy000

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Re: AMZN - Amazon.com Inc.
« Reply #567 on: July 25, 2014, 07:37:22 AM »
We have only been talking about it for a quarter but the trends have been going on for many years.  If the thesis is that they will eventually be able to cut the spend or raise prices and this becomes a wonderful cash flowing investment, my,point is that not only are they heading in the wrong direction but that it is getting worse. The deeper the hole, the further you have to climb to get out of it.

I get the 40 quarter view.  I do.  The problem with it in my mind is that's been the argument for 20 years now.  At some point the long term thesis needs to turn into results but it just keeps being a long term thesis with no end in sight. What happens if 40 quarters from now they still aren't profitable and say they are investing for the long term?

JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #568 on: July 25, 2014, 08:24:18 AM »
Amazon had 10% FCF margins four years ago so it hasn't been twenty years, unless you care more about operating income than FCF.


Similar FCF margins now would result in FCF of $9B or and the market cap./FCF multiple would be 16X.

JAllen

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Re: AMZN - Amazon.com Inc.
« Reply #569 on: July 25, 2014, 08:34:09 AM »

Once they built the moat and became a monopoly, the Govt may step in. They'll end up without getting the return that they sought for.

There's not much precedent for actually breaking up monopolies in the U.S.  Standard Oil and AT&T come to mind, both of which actually had monopolies. 

WMT is 10X larger than AMZN as a percentage of retail sales in the U.S.  There hasn't been even discussion of breaking WMT up.

They might achieve a monopoly with books, but I doubt that will happen with retail or computing.  I'm guessing books will be a $30B industry (it's ~$15B now).  They could break up the book business and we could still do very well.

Monopolies are 40%-100%.  They have a retail share of 1% now so let's hope that share grows to something like monopoly status  - 45% of retail  - but that just won't happen (would be 3X my most optimistic expectation).