Author Topic: AMZN - Amazon.com Inc.  (Read 651046 times)

muscleman

  • Hero Member
  • *****
  • Posts: 3151
Re: AMZN - Amazon.com Inc.
« Reply #620 on: August 15, 2014, 01:42:42 PM »
I read through these comments again but still can't understand it.

"It gets interesting when we adjust our cap-to-sales ratio comparison to include estimated gross third-party sales.  Instead of selling at twice the ratio to sales of the average bricks–and-mortar retailer, Amazon is selling at only 80%."
http://www.oakmark.com/Commentary/Commentary-Archives/2Q14--Bill-Nygren.htm?rf=dr


Right now Costco and Walmart has price/sales ratio of 0.5, so Nygren is saying that AMZN's adjusted price/sales is 0.4 right now.
AMZN's market cap is 154 B. So Nygren's estimated adjusted sales is 385 B.

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9739502-812-328695&type=sect&TabIndex=2&companyid=7235&ppu=%252fdefault.aspx%253fsym%253dAMZN
I am not sure how to get to this 385 B number. According to 2013 10-K, product sales revenue is 60 B and services revenue is 13 B, which includes third party fees, AWS etc.
Even if we assume the 13 B is entirely third party fees, and we assume AMZN charges 13% commision, then the third party sales is merely 100 B, which makes the total annual adjusted sales to be 160 B.

How does he get the 385 B number? ::)

My guess is two things:  a) that he's not using WalMart or Costco as the typical bricks and mortar stores.  If he says they're trading at double the typical bricks store he must be using 1x sales as his typical figure (since Amazon trades at 2x 2013 sales).  b) if you take 80% of the "typical" sales/cap multiple he's saying Amazon is trading at 0.80 of grossed up revenues.  That would imply total revenues of about $190bn if you grossed up the 3rd party sales.  That still implies third party sales of $115bn which can't be right (and that's starting with total revenues not product revenues which would balloon the third party sales even more).

I am not a fan of relative valuation. In addition, I think AMZN is more comparable to WMT and Costco instead of the department stores. WMT and Costco sell at razor thin margins and gain the advantage from scale and efficiency. Department stores sell things at a premium but they can because their location is good and people want to spend time there.

So if we use $140 B adjusted sales, AMZN is trading at 1.1x P/S, which is much more expensive than WMT and Costco.
I am muslceman. I have more muscle than brain!


Laxputs

  • Sr. Member
  • ****
  • Posts: 357
Re: AMZN - Amazon.com Inc.
« Reply #621 on: August 22, 2014, 02:53:43 PM »
Been reading this piece of capital allocation:  http://www.valuewalk.com/wp-content/uploads/2014/08/document-1036635381.pdf

Just thought it was interesting how R&D is expensed on the income statement because its future is thought of as too uncertain to quantify. Given the ridiculous amount of new products at Amazon, the amount of R&D expenditures must be huge and eventually that will get drastically reduced. This has been mentioned a few times though I know.

Laxputs

  • Sr. Member
  • ****
  • Posts: 357
Re: AMZN - Amazon.com Inc.
« Reply #622 on: August 22, 2014, 03:56:36 PM »
Funny, Bezos is quoted in the report as I keep reading:

Finally, recognize that the debate about the short term versus the long term is an empty one. Instead,
acknowledge that the goal is to maximize long-term value per share. This applies to activities that
management expects to pay off quickly or in the distant future. Amazon.com is a company that appears
comfortable taking a long-term view. The company’s CEO, Jeff Bezos, argues that there is less competition
for long-term initiatives. He says, “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.” 109

muscleman

  • Hero Member
  • *****
  • Posts: 3151
Re: AMZN - Amazon.com Inc.
« Reply #623 on: August 23, 2014, 10:05:17 AM »
I read through these comments again but still can't understand it.

"It gets interesting when we adjust our cap-to-sales ratio comparison to include estimated gross third-party sales.  Instead of selling at twice the ratio to sales of the average bricks–and-mortar retailer, Amazon is selling at only 80%."
http://www.oakmark.com/Commentary/Commentary-Archives/2Q14--Bill-Nygren.htm?rf=dr


Right now Costco and Walmart has price/sales ratio of 0.5, so Nygren is saying that AMZN's adjusted price/sales is 0.4 right now.
AMZN's market cap is 154 B. So Nygren's estimated adjusted sales is 385 B.

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9739502-812-328695&type=sect&TabIndex=2&companyid=7235&ppu=%252fdefault.aspx%253fsym%253dAMZN
I am not sure how to get to this 385 B number. According to 2013 10-K, product sales revenue is 60 B and services revenue is 13 B, which includes third party fees, AWS etc.
Even if we assume the 13 B is entirely third party fees, and we assume AMZN charges 13% commision, then the third party sales is merely 100 B, which makes the total annual adjusted sales to be 160 B.

How does he get the 385 B number? ::)

My guess is two things:  a) that he's not using WalMart or Costco as the typical bricks and mortar stores.  If he says they're trading at double the typical bricks store he must be using 1x sales as his typical figure (since Amazon trades at 2x 2013 sales).  b) if you take 80% of the "typical" sales/cap multiple he's saying Amazon is trading at 0.80 of grossed up revenues.  That would imply total revenues of about $190bn if you grossed up the 3rd party sales.  That still implies third party sales of $115bn which can't be right (and that's starting with total revenues not product revenues which would balloon the third party sales even more).

I am not a fan of relative valuation. In addition, I think AMZN is more comparable to WMT and Costco instead of the department stores. WMT and Costco sell at razor thin margins and gain the advantage from scale and efficiency. Department stores sell things at a premium but they can because their location is good and people want to spend time there.

So if we use $140 B adjusted sales, AMZN is trading at 1.1x P/S, which is much more expensive than WMT and Costco.

JAllen, do you have any thoughts on that? The numbers don't seem to match Nygren's conclusion. :-\
I am muslceman. I have more muscle than brain!

JAllen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 622
Re: AMZN - Amazon.com Inc.
« Reply #624 on: August 23, 2014, 11:15:58 AM »
I've never really thought about AMZN in a relative-value way.  I think relative value is one of the less reliable valuation methods except for when there's a structural reason one stock is trading lower than comps., like tiny illiquid stocks trading cheaper than SEC-registered counterparts. 


I also think that AMZN isn't directly comparable to these other companies: AMZN is in many, much different, arguably better businesses than WMT/TGT/COST. AMZN's FBA revenue, however much it is, should be priced similarly to eBay's commission revenue (FBA is more capital intensive than eBay's pure commission model but is growing way faster).


But anyways, I've always thought about AMZN in an absolute way: how much will our sales and FCF be in 5-10-20 years.  I do think about AMZN's sales relative to WMT's current/peak sales and how much bigger they could be because AMZN is operating in more parts of the economy and sells orders of magnitude more SKUs.  But AMZN is structurally very different than WMT.


Chad from Peridot Capital rightfully pointed out that AMZN already has operating cash flow margins higher than the big B&M retailers which would make AMZN's sales worth more than theirs.  We know that not ever having to purchase sub-urban real estate, more automation and software driven makes AMZN less capital intensive so every dollar of sales should be worth more. 


Last thing: AMZN's gross margin this past quarter, 30.7%, just matched TGT's and is still expanding, so now it has gross margins that are higher than WMT/TGT/COST too.

Palantir

  • Hero Member
  • *****
  • Posts: 2620
Re: AMZN - Amazon.com Inc.
« Reply #625 on: August 23, 2014, 11:44:59 AM »
Amazon Prepares Online Advertising Program
http://online.wsj.com/articles/amazon-preps-a-challenge-to-googles-ad-business-1408747979

Quote
Amazon.com Inc. AMZN -0.40%  is gearing up to more directly challenge Google Inc. GOOGL +0.02%  's dominance of the online advertising market, developing its own software for placing ads online that could leverage its knowledge of millions of Web shoppers.

Initially, Amazon plans to replace those ads on its pages that Google chiefly supplies with a new in-house ad placement platform, said people familiar with the matter. In the future, that system could challenge Google's $50 billion-a-year advertising business and Microsoft Corp.'s MSFT -0.15%  , they added.
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT

KCLarkin

  • Hero Member
  • *****
  • Posts: 1676
Re: AMZN - Amazon.com Inc.
« Reply #626 on: August 23, 2014, 11:53:18 AM »
I've never really thought about AMZN in a relative-value way.

It is useful as a sanity test, especially to avoid a story stock that is crazy over-valued. 

I think that is what Nygren's analysis is all about. He knows that he can't reliably predict future free cash flow for AMZN. By doing a back-of-the-envelope relative analysis, he is just making sure valuation is in a range of reasonableness. Then he can make a qualitative judgement about the stock.

JAllen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 622
Re: AMZN - Amazon.com Inc.
« Reply #627 on: August 23, 2014, 03:11:26 PM »
I don't disagree that relative valuations are useful, they're just the least useful, IMO.  You never heard Buffett say 'Pepsi was trading at 20, Coke was trading at 13 so I bought it'.  He got rich because he bought companies for 10X, but often much less (NFM was 4X, believe it or not!) or companies that had 20 years or more to grow.


And also, because I'm concerned with how much AMZN will earn in 10 years, whether or not AMZN is priced perfectly relative to companies that aren't even directly comparable is not a major focus of mine.  Relative value is a very now focused method, inherently.


Regardless I think AMZN should trade at a large EV/sales premium to the companies mentioned, though that probably goes without saying.

wbr

  • Full Member
  • ***
  • Posts: 108
Re: AMZN - Amazon.com Inc.
« Reply #628 on: August 25, 2014, 11:43:18 AM »

Palantir

  • Hero Member
  • *****
  • Posts: 2620
Re: AMZN - Amazon.com Inc.
« Reply #629 on: August 25, 2014, 11:53:21 AM »
JAllen, you think AMZN should start investing its "float" in equities?
My Portfolio: AMZN, PAGP, FSLR, OKE, PYPL, RHT, MSFT