Palantir Posted July 25, 2014 Share Posted July 25, 2014 The AWS alone could potentially be bigger than the retail operations, aka a monster. This is a 4B Revenue business growing at 40% annually. Link to comment Share on other sites More sharing options...
JAllen Posted July 25, 2014 Share Posted July 25, 2014 Last saturday I went to return a quad-copter I had purchased that had a motor stop working after a couple of days. At about noon I did the two step process to return it; I marked it as defective. I checked that I wanted a replacement. I finished the process and an hour later I got an email saying, we're sending you a replacement and it will be there in a few hours. A replacement showed up at about 6PM. You can't beat that. Link to comment Share on other sites More sharing options...
JAllen Posted July 25, 2014 Share Posted July 25, 2014 I also want to reiterate - I think Amazon is a fantastic company. I use them regularly. I would even invest in the stock very happily given the moat I think they have. But anything near today's stock price just doesn't make sense to me. Market cap is over $150bn and there's $1bn of FCF. If you are investing for the next 40 quarters, to get say a 12% annualized return on your investment (which is not excessive given the time and risk) implies that in 10 years the market cap will be $520bn. Assuming that it is then trading off of a FCF multiple (and not still a revenue multiple with no profitability), even at a 20x multiple implies $26bn of FCF. That's a MASSIVE assumption for only 12% annual return. Yeah so digging really deeply into the financials and estimating what they're spending on growth expenses is really important to thinking AMZN's a good investment now. Link to comment Share on other sites More sharing options...
dwy000 Posted July 25, 2014 Share Posted July 25, 2014 Last saturday I went to return a quad-copter I had purchased that had a motor stop working after a couple of days. At about noon I did the two step process to return it; I marked it as defective. I checked that I wanted a replacement. I finished the process and an hour later I got an email saying, we're sending you a replacement and it will be there in a few hours. A replacement showed up at about 6PM. You can't beat that. You can't beat that as a customer. No question. But did Amazon make money on that? Two weeks ago we got my daughter a little sand box. I ordered 2 50lb bags of sand on Amazon. It cost less than $10 a bag and because I did it thru my wife's Prime account it was free shipping. When we got it we realized that we needed more (100lbs of sand isn't as much as you'd think!). So we repeated the process. We paid less than $40 for 200lbs of sand that was delivered for free. As a customer I'm thrilled. But there's no way Amazon made money on that sale. Link to comment Share on other sites More sharing options...
dwy000 Posted July 25, 2014 Share Posted July 25, 2014 I also want to reiterate - I think Amazon is a fantastic company. I use them regularly. I would even invest in the stock very happily given the moat I think they have. But anything near today's stock price just doesn't make sense to me. Market cap is over $150bn and there's $1bn of FCF. If you are investing for the next 40 quarters, to get say a 12% annualized return on your investment (which is not excessive given the time and risk) implies that in 10 years the market cap will be $520bn. Assuming that it is then trading off of a FCF multiple (and not still a revenue multiple with no profitability), even at a 20x multiple implies $26bn of FCF. That's a MASSIVE assumption for only 12% annual return. Yeah so digging really deeply into the financials and estimating what they're spending on growth expenses is really important to thinking AMZN's a good investment now. It's better investment strategy than hoping! My point is you can't extrapolate the general assumption of future long term growth and potential profitability to justify any price today. At some price today it's a steal and at some price it's way overvalued. How do you make that determination without putting some implicit numbers on that future cash flow or stock price? Link to comment Share on other sites More sharing options...
dwy000 Posted July 25, 2014 Share Posted July 25, 2014 The retailers you cited above made money for many years. They didn't not make money in every single year of their existence. Even Costco earns 3% operating margins on their 13% gross margin. They don't have to 'shutoff any freebies'. I don't watch Instant Video nor do I use the Kindle book library. That's not why I and many others shop at AMZN. It's because I trust that I'm getting a good price and what I order will reliably arrive in two days. I don't even price shop anymore (except for the occasional large ticket item). I don't listen to the music either. You may not care about the freebies but I'm guessing you have been a Prime customer for years. In order to sign up new Prime customers Amazon obviously feels that the freebies are important (otherwise why do it - why give away something you don't have to). And once you start the freebies it's tough to stop them. If they started charging separately for all those freebies on Prime, how difficult would it be to sign up new customers and how many existing would decide to drop it? Those retailers made money for years and then slowly stopped and are dying. Amazon is hoping to do the reverse (not die, turn from no profits to profits). I'd argue, how many multi billion dollar retailers have shown the ability to do that - while growing revenues? I can't think of any. Link to comment Share on other sites More sharing options...
Laxputs Posted July 25, 2014 Share Posted July 25, 2014 This really reminds me of studying Thomas Kuhn's Incommensurability in University years ago. Where two theorists are not speaking the same language as one another so trying to present their respective arguments is futile. As in two different paradigms of thought. Link to comment Share on other sites More sharing options...
JAllen Posted July 25, 2014 Share Posted July 25, 2014 I don't think we're quite that different. It's just that I have more conviction about somethings and am weighing certain items more positively than dwy000 is. I have more conviction about the future because of certain past items and these aren't convincing (or I haven't conveyed the material that convinces me) enough to dwy000, which is of course fine. We do agree that AMZN is a fantastic company though, so that's nice. Link to comment Share on other sites More sharing options...
dwy000 Posted July 25, 2014 Share Posted July 25, 2014 I don't think we're quite that different. It's just that I have more conviction about somethings and am weighing certain items more positively than dwy000 is. I have more conviction about the future because of certain past items and these aren't convincing (or I haven't conveyed the material that convinces me) enough to dwy000, which is of course fine. We do agree that AMZN is a fantastic company though, so that's nice. Completely agree!!!! Link to comment Share on other sites More sharing options...
DTEJD1997 Posted July 26, 2014 Share Posted July 26, 2014 Two weeks ago we got my daughter a little sand box. I ordered 2 50lb bags of sand on Amazon. It cost less than $10 a bag and because I did it thru my wife's Prime account it was free shipping. When we got it we realized that we needed more (100lbs of sand isn't as much as you'd think!). So we repeated the process. We paid less than $40 for 200lbs of sand that was delivered for free. As a customer I'm thrilled. But there's no way Amazon made money on that sale. I am going to assume that your are serious... WHO'S IDEA IS IT TO SELL SAND ON THE INTERWEB????I want to see the account executive that said "selling 50 lbs. bags of sand is where we need to take this company." Better yet, we'll offer FREE SHIPPING & put local mom & pop sand sellers out of business! Just think when we've cornered the market on sand! This makes me think of internet bubble 2.0. Link to comment Share on other sites More sharing options...
LC Posted July 26, 2014 Share Posted July 26, 2014 Last saturday I went to return a quad-copter I had purchased that had a motor stop working after a couple of days. At about noon I did the two step process to return it; I marked it as defective. I checked that I wanted a replacement. I finished the process and an hour later I got an email saying, we're sending you a replacement and it will be there in a few hours. A replacement showed up at about 6PM. You can't beat that. You can't beat that as a customer. No question. But did Amazon make money on that? Two weeks ago we got my daughter a little sand box. I ordered 2 50lb bags of sand on Amazon. It cost less than $10 a bag and because I did it thru my wife's Prime account it was free shipping. When we got it we realized that we needed more (100lbs of sand isn't as much as you'd think!). So we repeated the process. We paid less than $40 for 200lbs of sand that was delivered for free. As a customer I'm thrilled. But there's no way Amazon made money on that sale. You're right. But do you order books on Amazon? Kitchen supplies? Etc. etc. etc.? Those orders they do make money on. Moreso than Walmart and others. So delivering you that sand (which Amazon assumues you order less frequently than books etc.) ensures that you remain a customer, and it ingrains you into the "Amazon ecosystem" (to steal a term from the Apple thesis). Also, do we know the specifics of their contracts with their delivery partners? We don't know how much they lost on the sale. Perhaps due to the massive volume of business they do with Fedex or UPS or whomever, they may have broken even on the sale. Link to comment Share on other sites More sharing options...
dwy000 Posted July 26, 2014 Share Posted July 26, 2014 I was completely serious about the sand story. I was shocked myself. Yes, I order a bunch of smaller items on Amazon. So they make money off me on the items sold I guess but most of that has to be offset by the shipping costs where we have gotten more than our $99 worth. We're pretty inefficient about it. We'll order a single book, then later that day order some stickers for the kids or something. So we will get multiple deliveries of $5 items. Before Prime I would have grouped them all into a single purchase but will free delivery we don't even think about it. Not my cost. Link to comment Share on other sites More sharing options...
Laxputs Posted July 26, 2014 Share Posted July 26, 2014 We're pretty inefficient about it. We'll order a single book, then later that day order some stickers for the kids or something. I literally laughed out loud when I read this. Good stuff. Link to comment Share on other sites More sharing options...
bargainman Posted July 26, 2014 Share Posted July 26, 2014 I was completely serious about the sand story. I was shocked myself. Yes, I order a bunch of smaller items on Amazon. So they make money off me on the items sold I guess but most of that has to be offset by the shipping costs where we have gotten more than our $99 worth. We're pretty inefficient about it. We'll order a single book, then later that day order some stickers for the kids or something. So we will get multiple deliveries of $5 items. Before Prime I would have grouped them all into a single purchase but will free delivery we don't even think about it. Not my cost. Fair enough, but until you get to that point remember that you have given Amazon the money upfront and therefore this is essentially some sort of float. I do pretty much the same though :-) Link to comment Share on other sites More sharing options...
bargainman Posted July 26, 2014 Share Posted July 26, 2014 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? I think it ultimately comes down to the old adage about one bird in the hand versus two in the bush:-) ultimately you are trusting that all of this investment is going to become some kind of moneymaker in the future because Amazon is not booking these profits today. I think they are certainly investing in some things that are going to be long-term investments, but there are other things where they are seemingly just not making A profit. To be honest I think one of their biggest advantages is that they are willing to run a very tight margin operation but go into businesses that have traditionally had really wide margins. Link to comment Share on other sites More sharing options...
Palantir Posted July 28, 2014 Share Posted July 28, 2014 This article's title is not entirely accurate in that MS and IBM make a lot of their revenues on higher margin applications, whereas AMZN is more of an infrastructure provider, but going forward I think this is going to be a big concern for AMZN. MS has a presence in both public and private clouds, and has obviously a much larger portfolio on the application end in addition to a very large installed base of clients. Google is also emerging in this space, but I don't really see what Google's edge is. I would like to see AMZN increase their applications portfolio....if only Salesforce was cheaper. Amazon Is Facing A Cloud Crisis, As Microsoft Muscles In http://www.forbes.com/sites/georgeanders/2014/07/28/amazon-is-facing-a-cloud-crisis-as-microsoft-muscles-in/?partner=yahootix Link to comment Share on other sites More sharing options...
Liberty Posted July 29, 2014 Share Posted July 29, 2014 Interesting piece on how Amazon might be losing its strategic focus: http://stratechery.com/2014/losing-amazon-religion/ Link to comment Share on other sites More sharing options...
Grenville Posted July 29, 2014 Share Posted July 29, 2014 "CEO Who Sold Diapers.com to Amazon Raises $55 Million to Challenge Amazon Again" http://recode.net/2014/07/29/ceo-who-sold-diapers-com-to-amazon-raises-55-million-to-challenge-amazon-again/ Marc Lore's Blog post confirming capital raise: http://marcericlore.tumblr.com/post/93220359281/jet-a-new-era-of-transparency-and-empowerment-in Link to comment Share on other sites More sharing options...
JAllen Posted July 31, 2014 Share Posted July 31, 2014 http://recode.net/2014/07/30/why-amazon-is-pouring-2-billion-into-india-in-three-charts/ AMZN started expanding internationally at the age of ~6, not 30 like Walmart. Their international expansion is probably the biggest reason they don't show more income. Indeed the N. American segment does have a 4% operating margin if you allocate half of stock-comp. to it despite having all technology (developers) costs allocated to it (which is the right thing to do in your highest corp. tax jurisdiction if you care about maximizing cash flows). You won't see this fact in any headline though! Startup operations may take years to become profitable. To us, it's definitely worth making a huge investment and effort in trying to gain footholds in additional wealthy and/or populous countries like India. Wouldn't you rather your company make a huge effort in immediately expanding internationally or just develop its own market and let others have the rest? Link to comment Share on other sites More sharing options...
txlaw Posted August 2, 2014 Share Posted August 2, 2014 From Scratch interview with the Quidsi founders: http://www.fromscratchradio.com/show/vinnie-bharara-and-marc-lore Incidentally, I believe Vinnie Bharara is Preet Bharara's brother. Link to comment Share on other sites More sharing options...
Grenville Posted August 2, 2014 Share Posted August 2, 2014 From Scratch interview with the Quidsi founders: http://www.fromscratchradio.com/show/vinnie-bharara-and-marc-lore Incidentally, I believe Vinnie Bharara is Preet Bharara's brother. He is his brother. This is an old interview, but still good. The version I have on my computers is longer ~51mins. It might be this one: http://www.npr.org/2013/09/18/223785364/marc-lore-and-vinnie-bharara-founders-of-diapers-com Link to comment Share on other sites More sharing options...
frommi Posted August 7, 2014 Share Posted August 7, 2014 After reading Buffet and Pabrai both mention Amazon as a very nice business, i am scratching my head around what the right price may be. At 10xEV/EBITDA its probably really cheap, 15-20x EV/EBITDA can be a fair price when i look at KO or GOOG. For me at the current price its too expensive, even if it grows EBITDA by 30%. What are you using to value Amazon? Link to comment Share on other sites More sharing options...
Palantir Posted August 7, 2014 Share Posted August 7, 2014 Use CFO, and estimate a normalized CapX figure to estimate "owner earnings". Curious to know what multiple of this figure you think it should be worth. I would say that it is not "cheap", but given its growth ahead, I think it is reasonable. Link to comment Share on other sites More sharing options...
frommi Posted August 7, 2014 Share Posted August 7, 2014 Thats 2 billion $ or 1.4% owner earnings? So it takes 5 years of 30% growth to come to something more reasonable like 4-5%? Link to comment Share on other sites More sharing options...
Palantir Posted August 7, 2014 Share Posted August 7, 2014 Why are you using such a high capX figure? Did you just use CapX = D&A? Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now