AMZN - Amazon.com Inc.

[JAllen]

Has anyone used AMZN's Dash?  It's incredible.  And they sent it to me for free.

 

 

You talk into it or scan an item and then it shows up in your Fresh app on your phone making it super easy to buy stuff.  No one's doing anything like this.  AMZN is so far ahead of everyone with e-commerce, except for Alibaba in China, of course.

 

 

It's an actual computer - there are processors in there and other stuff. 

 

 

The voice search results are surprisingly accurate too, much more so than Siri's.  Haven't used Google's voice search in a while, but AMZN's is good.  This is another one of those things that AMZN is spending on, widening the moat, which is pretty much all that matters.

[JAllen]

 

 

 

When we all do CAGRs for X years and we look out ten years to estimate returns and exit multiples, etc.  This is a really good thing to do. 

 

 

But one thing that it might be easy to overlook is: what's going to happen over the next five years? Gross profit is growing 30% (until this past quarter it was growing 32-33%).  I think investors over the next five years will get much greater returns than those over 10-20 years, even though I think those returns will be high too.

[KCLarkin]

I'm not really a growth investor but as an example, I own Alimentation Couche-Tard. Since AMZN IPO, ATD.B is up 4327%. AMZN is up 208%. ATD.B pays a dividend and trades at 23 PE.

 

You missed some 0's here.  AMZN is up about 16,600%, give or take, since it's IPO, not 200%.

 

Yes, I clarified this above. My numbers were from bubble peak. These are also from Google Finance, so it is possible that there are data errors.

[rpadebet]

Why is nobody else acounting like amazon when it is the superior model to grow?

 

I think it was Mohnish Pabrai who stated, " there is probably a human gene in us which prevents us from copying other successful models around us"

[handycap5]

And yes, we start getting into the trillions. 

 

 

Go back to the 1990 Dow and you will see that now the largest companies are earning 10X what they were then.  So I basically believe that in 20-30 years the largest companies will be at least 10X what they are today.  And AMZN is one-quarter the size of the largest companies today.  It's one-third XOM and GOOG.  It's two-thirds of FB. It's one-fifth of AAPL.

 

 

If you really think about AMZN's long-term approach, it helps me get comfortable with over time, they will just demolish many other companies - including ones like the large media companies.  The approach is just amazing and will - again over time - lead to very consistent success and growth.  In twenty years, WMT will be today's SHLD, unless they really get their act together, which I don't believe they are.  WMT is still spending 10X on B&M relative to e-commerce.  There's no owner-manager at the helm - key difference and key part of why I'm betting on Bezos.

 

I think the comparison to WMT and others is not a bad way to frame it. I expect you will be proven right on the business growth over time. On the stock, however, I'm not so sure. It is helpful to consider WMT's trading prices. In the late 1990s, it became clear that WMT was an "inevitable" too, so that by the end of the 1990s decade, the stock price reflected the future revenue growth. Said another way, the P/S collapsed over the next decade, from above 2.0x to less than 0.5x. It ended up being a great business, but a bad stock.

 

Credible people guess that Amazon's GMV is ~$120B, whereas the EV is ~$130B. Of course, WMT made money and AMZN's normal op margins are TBD.

 

Let's say Amazon's GMV is $300B+, growth is starting to move toward high-single digits, what would you expect op profits to be on this figure? appreciate the help...

[Palantir]

I don't think 20% revenue growth is a particularly high hurdle. I'm not really a growth investor but as an example, I own Alimentation Couche-Tard.

 

Can you say this with a straight face?

[KCLarkin]

To respond to why I don't own some Canadian company I've never heard of:  because I've never heard of it, never used their products, and I don't know anything about it.  Amazon is the exact opposite: I've been using Amazon's products and services for years now and they are leaders in literally every business they're in, except for phones, which were launched three months ago.

 

Yes, that would confirm my diagnosis of availability bias. Anyway, instinctively I do think AMZN is relatively cheap at $140B. I haven't listened to the latest conference call yet, so I guess I should reserve judgement.

[rpadebet]

And yes, we start getting into the trillions. 

 

 

Go back to the 1990 Dow and you will see that now the largest companies are earning 10X what they were then.  So I basically believe that in 20-30 years the largest companies will be at least 10X what they are today.  And AMZN is one-quarter the size of the largest companies today.  It's one-third XOM and GOOG.  It's two-thirds of FB. It's one-fifth of AAPL.

 

 

If you really think about AMZN's long-term approach, it helps me get comfortable with over time, they will just demolish many other companies - including ones like the large media companies.  The approach is just amazing and will - again over time - lead to very consistent success and growth.  In twenty years, WMT will be today's SHLD, unless they really get their act together, which I don't believe they are.  WMT is still spending 10X on B&M relative to e-commerce.  There's no owner-manager at the helm - key difference and key part of why I'm betting on Bezos.

 

I think the comparison to WMT and others is not a bad way to frame it. I expect you will be proven right on the business growth over time. On the stock, however, I'm not so sure. It is helpful to consider WMT's trading prices. In the late 1990s, it became clear that WMT was an "inevitable" too, so that by the end of the 1990s decade, the stock price reflected the future revenue growth. Said another way, the P/S collapsed over the next decade, from above 2.0x to less than 0.5x. It ended up being a great business, but a bad stock.

 

Credible people guess that Amazon's GMV is ~$120B, whereas the EV is ~$130B. Of course, WMT made money and AMZN's normal op margins are TBD.

 

Let's say Amazon's GMV is $300B+, growth is starting to move toward high-single digits, what would you expect op profits to be on this figure? appreciate the help...

 

Amazon's retailing model has operating leverage built into it. That's why scale is important here. You need only so many fulfillment centers to keep your promise of next day delivery or same day delivery. Yes the initial investment in building out the network is huge, but once you get there, I don't think the marginal operating cost of sorting and shipping 150B GMV is that different from 300B GMV. Maybe a few % points higher because of labor, but operating expenses can be much lower than WMT's

 

To be conservative I assume WMT's operating margins for Amazon at the steady state you mentioned. 5%-7%

[JAllen]

Availability bias or circle of competence?  I knew about AMZN for ten years before buying it, so not sure I bought it just because it was available.

 

 

I went through every single small stock a few years ago and decided to own ~5 stocks that I really feel like I can predict the future of and all of which have owner-managers.

[JAllen]

To respond to why I don't own some Canadian company I've never heard of:  because I've never heard of it, never used their products, and I don't know anything about it.  Amazon is the exact opposite: I've been using Amazon's products and services for years now and they are leaders in literally every business they're in, except for phones, which were launched three months ago.

 

Yes, that would confirm my diagnosis of availability bias. Anyway, instinctively I do think AMZN is relatively cheap at $140B. I haven't listened to the latest conference call yet, so I guess I should reserve judgement.

 

 

Using this logic, if I purchase a stock that I know a lot about, it was available, and therefore I'm acting irrationally by buying stocks I'm aware of.  How would it be a good decision to buy a stock I wasn't aware of? How do you reconcile this logic with circle of competence?

[JAllen]

 

Great AMZN chart:

 

 

AMZN definitely incapable of 'making money'.

[JAllen]

I'm normally not a contrarian for the sake of being contrarian, and don't believe that's a good idea, but if you look at what EVERY single person is saying on Twitter about AMZN:

 

 

https://twitter.com/search?q=%24amzn&src=typd

 

 

You see that every single person thinks AMZN can't make any money.  You don't see a single one mention anything beyond numbers mentioned in headlines.  When the consensus is so negative it really makes me start to wonder.

 

There's a chart I'm trying to find - will post when I find it.

[JAllen]

Here's the chart.  Can't believe this chart doesn't cause more people to stop and think about it.

[rpadebet]

I'm normally not a contrarian for the sake of being contrarian, and don't believe that's a good idea, but if you look at what EVERY single person is saying on Twitter about AMZN:

 

 

https://twitter.com/search?q=%24amzn&src=typd

 

 

You see that every single person thinks AMZN can't make any money.  You don't see a single one mention anything beyond numbers mentioned in headlines.  When the consensus is so negative it really makes me start to wonder.

 

There's a chart I'm trying to find - will post when I find it.

 

I agree with the near unanimous consensus in the media everywhere...

But it doesn't square much with the only "8%-10%" drop today. I would have expected and actually want much more.

Maybe the ppl blogging/tweeting etc are not "invested" as much. Maybe the actual investors are silent but holding steady.

[rpadebet]

Here's the chart.  Can't believe this chart doesn't cause more people to stop and think about it.

 

they are thinking and the chart clearly support this view. Maybe AMZN is losing a couple of cents on every dollar of sales and is trying to make it up with volume

[JAllen]

It's as if AMZN is truly the only company to have massive revenues and no profits in the world, and no one stops to wonder why.  It's amazing.

 

 

Is the only possible explanation for AMZN's no profits that it 'can't' make money?  Are there any other possible explanations?  I've seen about six people in the universe admit that this is even possible.  Two of whom are very very smart tech industry guys, me, and a handful of people on here.

[dwy000]

Here's the chart.  Can't believe this chart doesn't cause more people to stop and think about it.

 

The problem is that so far the stock chart has largely followed that top line (sales).  And after 10 or 15 years of it people are starting to say "wait a sec.  Maybe we've been following the wrong line."

 

There comes a point where people need some proof of concept.  Or at least a roadmap to when they will start to prove the concept.  They're hitting that inflection point with investors. 

 

If you believe the long term story then just ride it out - but it could get extremely ugly in the meantime.  As long as they don't give a roadmap to profits or show some, the ability to buy it cheaper is likely - even if the 20 year value doesn't change.

[dwy000]

It's as if AMZN is truly the only company to have massive revenues and no profits in the world, and no one stops to wonder why.  It's amazing.

 

 

Is the only possible explanation for AMZN's no profits that it 'can't' make money?  Are there any other possible explanations?  I've seen about six people in the universe admit that this is even possible.  Two of whom are very very smart tech industry guys, me, and a handful of people on here.

 

Isn't it the exact opposite?  The rationale you have for holding the stock is the same one that people have had for investing in Amazon for the past 10-15 years:  we're growing and the profits will follow.  What you're seeing in the stock price now is the number of people who agree with your rationale starting to shrink.  If nobody else saw what you see, the stock would be about $50 not $300.

[JAllen]

AMZN was profitable until 4-5 years ago.  Everyone forgets this. 

[dwy000]

AMZN was profitable until 4-5 years ago.  Everyone forgets this.

 

I don't think people forget it - I think it's part of the problem. 5 years ago they were growing at 30%+ per year and still managed to show small profits (not nearly enough to justify the stock price, but profits nonetheless).  If those profit levels continued it would have rationalized the high stock price.  Now they are 3-4x the size, growth is slowing (somewhat) and they are showing larger and larger losses.

 

The question is, at what point do they stop investing and start profiting?  If they even gave an indication as to what that trigger is in their minds they would get huge credit in the stock price.  But if it shows no sign of ever ending, how do you price that?  Who wants to invest for 20 years to find out the thesis was wrong all along?

[Palantir]

 

 

The question is, at what point do they stop investing and start profiting? 

 

Given that the cloud market is a nascent market...I would say wait at least 15 years?

[Eric50]

Good right-up with some historical data

 

http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works

[plato1976]

The top line growth from the core retailer business is not strong:

 

"

Amazon said it expects holiday quarter revenue of $27.3 billion and $30.3 billion, below analyst expectations of $30.9 billion. That's an increase of 7 percent to 18 percent — slower growth than the prior-year holiday quarter when sales rose 20 percent.

 

Szkutak said the stronger dollar will hurt fourth quarter revenue by about 2.5 percentage points

"

 

The low-end guidance of 7%, if true, will be a real concern

 

Good right-up with some historical data

 

http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works

[KCLarkin]

Does anyone know why they think FCF and FCF ROIC are their key benchmarks? I see two problems with this:

- it excludes stock based compensation, which is real and significant

- it includes growth capex

[no_free_lunch]

I am fairly bullish on Amazon the company.  Still trying to figure out the stock.

 

The one item I am having trouble reconciling is the low sales forecasts for the holiday qtr vs the huge ramp-up in employees.  Did they just goof up with all that hiring or is there more to this?  Do they have a history of under-promising/over-delivering on their forecasts?  Given that they increased headcount by about 15% QUARTER OVER QUARTER it seems odd that sales would only grow 7% year over year.