AMZN?

[ok22]

Was interested in a discussion on how big people think Amazon could become in terms of revenue, profits, cashflow etc.  Is it cheap given its growth prospects or expensive given how much growth is already priced in?  How big is Amazon's moat really?

[Guest Bronco]

No doubt a great company, moat and all.  Here is my 2 cents:

 

Market cap is $62B.  Trailing FCF is $2B. 

 

What level of FCF would you be willing to pay $62B for?  If I can find other companies with 10% FCF, why buy this?  But to move on, let's say I want a 7% FCF for Amazon.  Amazon would need to generate $4.3B in FCF based on today's stock price.  When do you think that will happen?

 

Maybe 2 years, 3 years, 4 years...I don't know.  If you want to wait that long for a 7% FCF yield, then that is your decision.  It is not for me, simply because it is not my style.  But the flip side is that growth is tremendous.  They have potential in other areas than just retail (i.e. IT business).  Just like Walmart was a category killer for other companies (toys, video games, etc...), Amazon may be following Walmart's footsteps. 

 

There is also the unknown to consider.  Maybe Amazon is the company that buys the "next Skype".  How will they handle their excess capital?  I am not familiar enough with Amazon to know the international potential.  Maybe that is the key to future stock performance.  In any case, to all shareholders, good luck!

[Guest kawikaho]

Buy the next Skype?  And in your mind, is that a good or bad thing??  ???

[Guest Bronco]

Skype - Not good, not bad....HORRIBLE!

 

I don't think Amazon will pull off such a move, but my overall point is that a companies long term performance is based on 2 factors:

 

1) How well it generates capital from its business

2) How well is allocates that capital

 

We all know who the master is in this regard.  But some companies don't know what to do with cash.  With Amazon, in my mind, it is still an unknown. 

 

 

[Guest kawikaho]

Exactly my sentiments.  Skype was the stupidest move Ebay ever made, and they are getting trounced on every side by AMZN.  

 

AMZN is definitely expensive at the moment, but you gotta wonder about its future: it is by far the most dominant online retailer, and the only one to really challenge WalMart.  It can do things that no other retailer can.  It has the Kindle which is a runaway blockbuster.  It will stream video and movies to your TV someday soon.  It will stream games to your consoles and PC.  It will run cloud computing services for many small and medium businesses.  It will eventually take over the world.  :-)  

 

The biggest problem I see for AMZN is that it no longer is the lowest cost retailer online.  Walmart and many other brick and mortars are beginning to encroach on AMZN online space.  

 

I am definitely long AMZN in mind and spirit.  Just can't justify putting capital into it right now.

[NormR]

It seems likely that AMZN will eventually be hit with charging sales taxes which will make it a less attractive destination for U.S. shoppers. 

[Hoodlum]

It seems likely that AMZN will eventually be hit with charging sales taxes which will make it a less attractive destination for U.S. shoppers. 

 

This will hit all on-line reseller as governments close this loophole.  The same thing is happening in Canada with Ontario and BC going to HST, which will require the collection of the Provincial Sales Tax portion for all on-line sales.

[Guest Bronco]

Kawikaho,

 

BTW - don't know what it means, but I like your name.  Anyway, I agree with you that Amazon can win in so many ways.  I also agree it is expensive to the value investor, which may make up a majority of the members on this board. 

 

In short, I think Amazon has a bright future, but buying distressed assets is back in vogue!  This is certainly not distressed.

[Guest kawikaho]

It seems likely that AMZN will eventually be hit with charging sales taxes which will make it a less attractive destination for U.S. shoppers.  

 

This will hit all on-line reseller as governments close this loophole.  The same thing is happening in Canada with Ontario and BC going to HST, which will require the collection of the Provincial Sales Tax portion for all on-line sales.

 

Yeah, exactly.  And AMZN is a growth story, so definitely not value oriented for guys on here.  But, if you like the growth story of AAPL, GOOG, etc... you should love AMZN.

[uncommonprofits]

Amazon could have some challenges ahead of them with regards to their Kindle strategy.  First of all – their moat never revolved around being a hardware company.  Nor did it revolve around delivery of digital content.    For their Kindle strategy to be successful, Amazon will have to do one of the following two things (maybe both):

 

1.) Make their proprietary DRM platform (AZW) the industry closed standard. 

2.) The Kindle (and any future versions of it) will have to keep in front of the competition in being the best reading device ever known to mankind..... and they will likely need to substantially reduce the price.

 

As for making AZW the industry closed standard .... one might first consider the big push on right now by the Open Handset Alliance.    The OHA was founded only a couple years ago ... led by Google and the Android platform ... it includes some very big players ( Intel, Motorolla, Qualcomm, Texas Instruments, Samsung, LG, T-Mobile, Nvidea, Sony Ericsson, Toshiba, Acer, Asus, Garmin, Atheros, Sprint, China Mobile, etc.).

 

In the short couple years .... Android has been quickly moving up the ranks ... so much so that some are saying Apple’s platform could be in jeopardy.  Where does this put Kindle and AZW???  Well I guess that is why they bought Stanza a few months ago ... perhaps as insurance?  But as far as I know Stanza stll only supports the IPhone at present ... it does not support Android or any other platform (Blackberry, Palm, etc)..... at least not yet.

 

Sure the Kindle is selling a ton of these readers ..... even in this difficult economic environment.  But there are many companies involved in developing competing products that have yet to be introduced.  Apple’s rumoured ITablet is said to be a multi-use device.  Nextronix and Texas Instruments are developing an ereader that can apparently talk to your cell/smart-phone.... it might also double up as a personal computing machine (again with the brains in your pocket kind of idea). Present Kindles (and Sonys) have only scratched the surface --- where do HP and Dell fit in all this.  What we saw with the netbook this past year or so was the start of a merging of the handset with the traditional lap-top/PC.  The Kindle is kind of stuck right in the middle of this squeeze.  Mobile devices are going to get better .... they will become as good as the current Kindle is .... and eventually will get better.  Think colour ... think magical in terms of what the Kindle can do today.  And even better yet they will also get cheaper.  All indications are there will be at least one device on the market in 2010 for $99.

   

The other issue at stake is that e-book sales will at first impact mostly the on-line distribution channel.  One can’t help but think that AMZN will end up cannibalizing their own sales right off the start.  In order not to do this will require a high degree of success with Kindle sales and/or taking further share away from the retail channel.  One has to wonder if AMZN can make money selling the Kindle for $99?  And it all goes back to AZW ... if they are not successful in making this the standard .... what is the risk that all these current Kindles out there become obsolete very quick like?

 

UCP / DD

 

[bookie71]

what is the risk that all these current Kindles out there become obsolete very quick like?

.

don't forget the "nook" that Barnes and Noble is pushing hard.

 

[uncommonprofits]

Just might clarify that I don’t know a whole lot about what the rest of Amazon is up to or what their future prospects might be.  I do know that Books is a good portion of their business though .... and also that a company is only as good as their weakest link.  From what I have heard/read is that AMZN does not treat their affiliates very well ....  nor customers (publishers in the instance I have heard of).  The word that comes up frequently is ‘bullying’.  If true it could come back and haunt them at some point.  In the mean time like many have said ... there isn’t much of a safety cushion. 

 

I am mainly versed on the book side of the business through my ownership of a company called Indigo Books and Music here in Canada.  Indigo would be the equivalent of Barnes and Noble ..... only a whole lot smarter and top-of-class operation.  The jockey here is a very smart lady by the name of Heather Reisman.... who several years back managed to pull off somewhat of a monopoly in the bricks and mortar book retail business here in Canada.  She is very well connected throughout the world and a very intelligent honest woman.  Be your own judge:

 

Indigo was a late entry into the ebook market in February ..... their platform is called ‘Shortcovers’.  Shortcovers is device agnostic .... meaning they make it work on almost any device (current and future) other than the Kindle.  Shortcovers has made a lot of headway in a short period of time.  I don’t know if they will take market share away from Amazon (athough they might) ..... the potential here is to link up with book retailers around the world with their technology and content partnerships.  There has been a slogan on the wall in most Indigo Stores for quite some time that reads:  ‘The World Needs More Canada’.  They seem to be out of the starting gate with this Shortcovers venture to prove that point (1 million downloads of their app thus far).

 

Now one might ask .... what about cannibalism at the retail level.  As mentioned the channel expected to get hurt the most in the first phase is on-line distribution.  For most traditional book retailers (IDG included) .... they don’t have a whole lot to lose in this regard.  Margins are pretty much zero for what they sell in the online segment anyway.  But the other thing that IDG does very well .... is they have been increasing the inventory of gift and toy items while better managing book inventory.  A new concept Superstore thus far only has 15 out of 90 stores rolled out.  These newer stores have higher sales and margins -- in the next 2 or 3 years all 90 stores should be converted along with some new store additions.

http://m.theglobeandmail.com/globe-investor/indigo-turning-a-page-into-the-digital-age/article1199063/?service=mobile&page=0#article

 

Again, not saying that Shortcovers will take market share away from AMZN -- but they certainly stand to gain on a world wide basis in the book business.  But 'if' AMZN's moat is breached (which is possible) .... I don't know of anyone else who is in a better position right now.  Barnes and Noble's rollout of their Nook looks like a copy-cat Kindle strategy.  One could see B&N partnering up with IDG at some point too (accelerated if Fictionwise and Stanza were to part ways).  Shortcovers isn't only catering to all devices (present and future) ... it is also world wide .... the app has been downloaded in 189 countries.

 

UCP / DD

 

[uncommonprofits]

what is the risk that all these current Kindles out there become obsolete very quick like?

.

don't forget the "nook" that Barnes and Noble is pushing hard.

 

 

I would be very surprised if the Nook made the Kindle obsolete.  It's just another device being developed by a non-hardware type company.  The real interesting products are going to come from those that are in the business..... the Apples, Samsungs, Motorolas, Sonys, LGs, HPs, Dells, Texas Instruments, Blackberries, Palms, Nokias, and all the little unknown companies working on these sorts of devices.  If a device comes out that can give me both an excellent reading experience ..... and still be capable of other tasks (such as a laptop does now) .... and if it sells for <$100 -- I'm IN!!  And I suspect a whole lot of other value concious consumers will be too.  Amazon is not prepared right now for that world.  They might get there but are going to have to rely on their recent purchase of Stanza to do it.

 

Within a year or two .... I suspect that shopping for an e-reader and/or multiuse e-reader will probably be an overwhelming experience with so much choice .... similar to shopping for a laptop or netbook is today.  I currently have downloaded and read some ebooks on my laptop..... and so has my wife on her netbook.  It all gets downloaded to Adobe Digital Editions (epub format) ... and it is actually pretty good.  Yes, I know that the Kindle would be a lot better  ... but through Shortcovers I am 99% certain I will still be able to access these books in the future without worrying about switching brands.  As long as the future device is supported by Shortcovers ... I am ok to re-download my library from the Shortcovers cloud.  The neat thing about this app is you can have it on something like 6 different devices.  Reading on a smartphone would be a little painful for me ..... but if I forgot to take along some reading material where-ever I might be ... hey why not download something from my library to the furture smartphone device (don't have one yet -- but when I do it will probably be Android based). 

 

UCP / DD

[gokou3]

Hi,

 

First time posting on this board.  This thread is timely to me because a friend recently asked me for my opinion about AMZN as a SHORT idea and I have little knowledge of the company other than the fact that I like it as a customer.  After a very brief examination of the company, I see that the stock price has made a new all-time high and its latest buzz is in the Kindle e-reader which the market sees as a growth engine.

 

Now, I have no experience with Kindle or any e-reader, but a question quickly comes up: Why does one need to buy a new piece of hardware to read ebooks?  I understand there's also a software version of Kindle for the iphone & blackberry, but it seems that people are most interested in the hardware.  However, I believe netbooks / cellphones will eventually be good enough to match and exceed the functionality of Kindle.  Why make another piece of hardware that can do only one thing?

 

Besides, I would much rather NOT carry another device around, and I suspect many other people would share my preference. It seems that the war in e-readers will get down to software (for netbook/cellphone/whatever hardware that supports it) and this will likely evolve into a winner-take-all scenario (like ebay in the auction business) and at this stage it's difficult to see who will win.  As others have pointed out already there are many big players looking to compete in this space.  Maybe someone can enlighten me on the superiority of the Kindle platform vs. others.  I don't see Kindle has any moat yet other than it being a first-mover (which admittedly is a big advantage in a winner-take-all situation)

 

I haven't reached my conclusion yet whether AMZN is a short, but at least it doesn't look like a buy to me.

[Guest kawikaho]

You miss the point about Kindle and other ebook readers: the ebook readers use a new display technology called electronic ink.  I wouldn't even compare this to software pdf readers or the Apple ITablet.  Both, in my mind, are very different to the Kindle and Sony's ebook reader.  Here's the thing, these devices, in read mode, DO NOT DRAW CURRENT FROM THE BATTERY.  And they are very light, slim, and have a screen that mimics real paper.  Why would I want to lug around the equivalent of a laptop when a thin, light ebook reader is all I need?  When they finally have a pressure sensitive displays, I think we'll have a game changer.  You'll be able to write notes in your books and mark them up like a real book.  That would be great for students. 

 

As for AMZN as a short, you've gotta be nuts.  I would never short a leader with strong growth prospects.  There are much better oppty's out there with better risk/reward setups than something like this. You've got no edge here.

[jasonw1]

Kindle itself is just a cool gadget, there are other devices which can do similar things, but the end to end experience is not nearly as good as what Amazon offers.

 

Amazon's competitive advantage in this space is its Kindle + Kindle store, the book selection, and the end to end user experience. No other company can match that yet. Think about iPod + iTune, there are tons of MP3 players which can play music, but none of them offered the same experience, and none reached the same scale like Apple.

 

 

[Guest Bronco]

I have heard some cool stuff that is probably 2 - 5 years away that may make the Kindle obsolete.

 

MIT with a "tablet device" that resembles a piece of paper that can be folded.

 

A large IT company with a reader that becomes more interactive - links, search, video, etc.

 

We are still in the infancy of many of these devices.  Clearly, Amazon is doing well with its product, and may be the leader for quite some time.  But I believe the "moat" on the Kindle reader is tough to determine on a long-term basis.

 

Can't really knock the company that much, just maybe the stock price.  Personally, I prefer Apple as an investment, simply because it has as big a war chest as any U.S. company I can think of.

[bargainman]

I have heard some cool stuff that is probably 2 - 5 years away that may make the Kindle obsolete.

 

MIT with a "tablet device" that resembles a piece of paper that can be folded.

 

A large IT company with a reader that becomes more interactive - links, search, video, etc.

 

We are still in the infancy of many of these devices.  Clearly, Amazon is doing well with its product, and may be the leader for quite some time.  But I believe the "moat" on the Kindle reader is tough to determine on a long-term basis.

 

What makes you think Kindle will be obsolete?  2-5 years from now they'll incorporate newer technology.  Today's Kindle will be obsolete, but tomorrow's won't be.  I agree though that the moat is tough to determine.

 

This may sound crazy, but I think that amazon's low margins may actually be an advantage to the company.  I've worked at a company that has 40%+ margins and it's really tough for them to grow.  The expectations from shareholders are so high that they keep their margins up.  But the problem is that it's tough to expand into another business since there are no other businesses with such high margins.  Amazon's margins are so low that they can keep growing while making minimal profits without raising the ire of shareholders... I know it sounds crazy but it's a thought after seeing the opposite side of the equation... :-)

[Ballinvarosig Investors]

Some food for thought on Amazon and the book market.

• Insiders have been flogging shares at an incredible rate - http://www.gurufocus.com/InsiderBuy.php?symbol=AMZN.
  
• The price is trading at 17 times book value. If there is even a sniff of trouble, you're going to get wiped out.
  
• Amazon already have a 70% market share in the book market. For Amazon to trade at a fairprice, my back of the envelope calculations estimate that they need to sell 6 times the amount of books that they sell now.
  
• The digital book market was worth $80 million in 2008.
  

I don't short stocks, but if I ever started; I would pick Amazon.

[Guest Bronco]

Bargainman - In my defense, I did say "may" make the Kindle obsolete, not "will".  You could have made the same argument about the Sony Walkman, that they would incorporate new technology.  No one knows for sure.  I think we both end up at the same point, in that the moat is tough to determine.  But like I said, Amazon is doing everything right now and it is tough to knock the company or its management.  

 

To your point about low margins vs. high margins - everyone may prefer higher margins but that will never be the business they are in.  As you point out, Amazon is successful at what they are doing and that will certainly keep shareholders happy.

 

 

 

 

[gokou3]

You miss the point about Kindle and other ebook readers: the ebook readers use a new display technology called electronic ink.  I wouldn't even compare this to software pdf readers or the Apple ITablet.  Both, in my mind, are very different to the Kindle and Sony's ebook reader.  Here's the thing, these devices, in read mode, DO NOT DRAW CURRENT FROM THE BATTERY.   And they are very light, slim, and have a screen that mimics real paper.  Why would I want to lug around the equivalent of a laptop when a thin, light ebook reader is all I need?  When they finally have a pressure sensitive displays, I think we'll have a game changer.  You'll be able to write notes in your books and mark them up like a real book.  That would be great for students. 

 

As for AMZN as a short, you've gotta be nuts.  I would never short a leader with strong growth prospects.  There are much better oppty's out there with better risk/reward setups than something like this. You've got no edge here.

 

Kawikaho, thanks for summarizing the benefits of e-reader vs. traditional devices.  Any idea of the profit margin AMZN makes on the Kindle hardware itself?  I know the money is in the subsequent ebook sales, but would be curious whether they make money on the hardware as well.

 

Although AMZN is a leader as you said, given the high valuation ratios (P/E, P/B) I don't think it's a *nutty* idea to short AMZN (maybe a mediocre idea?).  However, I agree with you that there are probably better opportunities out there.  Perhaps you already have an idea or two?

 

[RichardGibbons]

When they finally have a pressure sensitive displays, I think we'll have a game changer.

 

FYI, one of the models of the Sony Reader has a touchscreen.  That said, I prefer the non-touchscreen, since I never annotate, and the non-touchscreen model has a higher contrast ratio.

[uncommonprofits]

You miss the point about Kindle and other ebook readers: the ebook readers use a new display technology called electronic ink.  I wouldn't even compare this to software pdf readers or the Apple ITablet.  Both, in my mind, are very different to the Kindle and Sony's ebook reader.  Here's the thing, these devices, in read mode, DO NOT DRAW CURRENT FROM THE BATTERY.   And they are very light, slim, and have a screen that mimics real paper.  Why would I want to lug around the equivalent of a laptop when a thin, light ebook reader is all I need?  When they finally have a pressure sensitive displays, I think we'll have a game changer.  You'll be able to write notes in your books and mark them up like a real book.  That would be great for students. 

 

As for AMZN as a short, you've gotta be nuts.  I would never short a leader with strong growth prospects.  There are much better oppty's out there with better risk/reward setups than something like this. You've got no edge here.

 

 

The Taiwanese company (Prime View) that manufactures these displays for AMZN is in the process of purchasing the rights to this e-ink technology --- as far as I know AMZN does not own any contractual rights to the patent in any way.  One would think that the reason Prime View is paying so much ($250 million??) for this technology is not only for the Kindle device ... but also for so many other device makers that they can either royalty to .... OR manufacture the displays on their behalf. 

 

And besides there are so many alternative technologies being developed by other manufactures (Apple, Microsoft ..... oh never mind you know the rest).  Alternative technologies have the potential to be 'as good' (if not better).  Correct me if I am wrong ... but isn't this current Kindle still in black and white?  Future e-readers will be capable of colour. 

 

 

I wouldn't even compare this to software pdf readers or the Apple ITablet.  Both, in my mind, are very different to the Kindle and Sony's ebook reader.  Here's the thing, these devices, in read mode, DO NOT DRAW CURRENT FROM THE BATTERY.  And they are very light, slim, and have a screen that mimics real paper.  Why would I want to lug around the equivalent of a laptop when a thin, light ebook reader is all I need?

 

The ITablet I am talking about has not even been released.  The details are still a bit fuzzy on it as I understand.  You are comparing the Kindle with whatever is out there today ..... without looking at what so many other company's are developing for tomorrow.  Wireless mobile technology is still in it's very infancy.  Laptops are getting smaller .... cell phones are getting smarter (in fact the term 'smart phone' is just beginning to replace the term 'cell phone').  Displays are going to improve dramatically.  The Kindle might too --- the risk for them is if they can keep pace.

 

 

When they finally have a pressure sensitive displays, I think we'll have a game changer.  You'll be able to write notes in your books and mark them up like a real book.  That would be great for students. 

 

I don't disagree with you .... but how about advancement in colour first?  Imagine the additional interest it might generate.  Young children are not going to be very interested in a B&W Kindle .... but offer them something more magical and you attract a whole new audience.  Drop the price below $100 and you might also have a game changer.

 

Kindle itself is just a cool gadget, there are other devices which can do similar things, but the end to end experience is not nearly as good as what Amazon offers.

 

Amazon's competitive advantage in this space is its Kindle + Kindle store, the book selection, and the end to end user experience. No other company can match that yet. Think about iPod + iTune, there are tons of MP3 players which can play music, but none of them offered the same experience, and none reached the same scale like Apple.

 

Hard to dispute that AMZN has an advantage in their product offering (ie. their huge library).  But if it was that huge of an advantage -- perhaps they would have chose to stick to their knitting and left the development of devices to other's.  The new entry I mentioned (Shortcovers) is rapidly catching up.  I believe SC is now at 150,000 + versus AMZN's offering of 300,000 + titles.  But this huge project that Google is undertaking (digitizing all of the out of print books) will add about 500,000 titles.  'Google Editions' should be out by mid-2010 .... and when it is - it will be accessible for ALL on-line retailers. Suddenly overnight AMZN's titles grow to 800,000+ --- with SC not that far behind at 650,000+.  And I anticipate that Shortcovers will continue to play catch up here as they have over the last 9 months or so.... they may possibly get more innovative on foreign language books also.

 

It's interesting that you bring up the MP3 player .... AMZN was a major push behind this technology at the time.  The MP3 player was out well before the iPOD.  They were the new/cool gadget of the day .... everyone had to have one ...... along came Apple.  With the Kindle ..... AMZN is simply trying to repeat what Apple did with iTunes.  But these are different times.  There are significant industry players who don't like the closed monopoly platform that Apple created with iPod, iTunes, etc.  When you look at past devices ... something called competition meant that no single company had a stranglehold on the market.  Vinyl, Cassete, CD --- they all had their various brands.  Yes there were some monopolies such as the RCA Jacks (GE) ... but no one company had a monopoly over the device itself .... everyone involved was allowed to 'play fair'.  The Open Handset Alliance's mission is to return things to normal ... it is not right to have unhealthy competiton (check out all the baby bells).  If Android becomes the operating system of the future .... where does this leave Apple .... let alone the Kindle?  Sooner or later they will have to adapt to an open platform ... it is a matter of 'when' NOT 'if'.  If the industry does not sort this out amongst themselves --- some form of Anti-Trust will.

 

The bottomline IMO is the industry will work out these competitive issues.  AMZN's moat is built around the physical delivery of books.  With that market about to shrink ... they run a very serious risk of cannibalizing themselves.  Sales of Kindle units might make up for this (for the time being) .... however, as competition enters the e-reader market the price in which they are selling the units will drop substantially.  In itself that is a challenge ... on top of it you have the challenge of maintaining device market share .... as well as content share.  If they can increase market share then perhaps things work out ok for them.  However, if market share goes stagnant ..... then they start cannibalizing their tradional business.  But with all the devices in the development pipeline ..... and with AMZN not having the similar moat they have in their traditional business model ... the problems could turn out worse than just cannibalization.

 

UCP / DD

 

[rmitz]

Some food for thought on Amazon and the book market.

• Insiders have been flogging shares at an incredible rate - http://www.gurufocus.com/InsiderBuy.php?symbol=AMZN.
  
• The price is trading at 17 times book value. If there is even a sniff of trouble, you're going to get wiped out.
  
• Amazon already have a 70% market share in the book market. For Amazon to trade at a fairprice, my back of the envelope calculations estimate that they need to sell 6 times the amount of books that they sell now.
  
• The digital book market was worth $80 million in 2008.
  

I don't short stocks, but if I ever started; I would pick Amazon.

 

I'm not going to defend the valuation of AMZN, certainly wouldn't buy it myself.  However, book value is a really misleading number for this kind of company--I'd go so far to say that book value is almost entirely fictional.  This is true for most companies where their value is more in intellectual property, people and brands rather than assets.  Similar to google, if enough of the right people left, the company starts to struggle and essentially goes into runoff.

[ok22]

Great discussion thread.  Thanks for playing!

 

Forecasting AMZN as a big grower based on Kindle would seem rather risky given all the various competitor dynamics that posters have pointed out.  

 

When I was thinking about what is amzn's moat was thinking (along with the kindle of course):

 

What about amzn's growth potential and moat as a general, broad product range retailer?  Are there enough retail dollars and categories from which amzn's business model can take share?

 

Some of the questions I find myself mulling over are:

 

1.  Why do some retailer competitors (target, gap types) and suppliers (sony types) that have their own websites sell through amzn?  As amzn grows and takes share from them will they pull their products to avoid creating another walmart who eventually is lording it over them (the product companies).

2.  On Kindle etc., does it really matter if amzn is the winner on kindle hardware?  As long as e-readers grow and one can buy content from amzn for one's e-reader doesn't amzn do ok?

3.  Is there any reason that online shopping won't keep taking share from bricks and mortar?  If online grows are there reasons that amzn wouldn't at least maintain its share?

4.  Books and electronics categories have worked well for amzn, but they seem to have really struggled to grow in other categories.  Why?  Is this something that will just take time from a consumer acceptance of online in other categories or is there some moat that incumbents have over amzn?  Or is it a sourcing problem e.g. clothing?

5.  Does amzn really have a big capex advantage over brick and mortar?  It seems like they would but it seems too easy.  As they grow am I underestimating by some huge amounts capex on warehouses, it etc

6.  The cashflow seems to all be about a/p vs. a/r timing - similar to Dell during the growth days- is this something that could disappear or change in a negative way (clearly if growth goes negative)?

7.  They claim a triple digit ROIC target.  Their calculation of current ROIC (40%ish) does it make sense?  Is it rigorous enough?  And it is the rare business with that kind of number that is not going to attract a lot of competition wanting some of the profit action.

 

By the way, completely agree with earlier comments about the jury is still out on their capital allocation capabilities from the excess cash they are generating.  Zappos etc. are expensive deals from a valuation perspective but it they are also too early too call if there was a lot of cost cutting or kill the competitor early logic/potential at some of these deals.  See Yahoo v. Google  or MSFT v. GOOG for strategic reasons to do this early if you are sure that the new entrant could eat your lunch even if it seems expensive at the time.