AMZN - Amazon.com Inc.

[CassiusKing1]

How good have this guy's conclusions been - just watching a Jan 20 2015 DLD video in which he says pure play retail does not work and Amazon will buy a large physical outlet infrastructure? So far? Nope.

Any views?

C.

 

Scott Galloway - How Amazon is Dismantling Retail

 

 

Thank you for sharing here, Liberty.

 

To be totally honest, this clip is the first time somebody has been able to explain to me, what Amazon is about - in a way, so that I understand it.

 

I haven't spent much time on my interest so far, without been straight out lazy on that matter - so out of pure interest - call it what you want : What are the Amazon plans for the roll out of the business model, outside US/NA?

 

- So far, without doing a lot of search and reading, I haven't found anything on this matter.

 

Amazon is right now not dismantling anything near me, locally - as far as I know. I might be wrong about this, however.

 

The sharing of any insights on this matter will be much appreciated, thanks.

Bezos is just waiting for Sears to get cheaper before he buys, lol.

[mankap]

I have attached the presentation of Social Capital CEO at 2016 Sohn Conference.

AMZN_palihapitiya_sohn.pdf

[DooDiligence]

How good have this guy's conclusions been - just watching a Jan 20 2015 DLD video in which he says pure play retail does not work and Amazon will buy a large physical outlet infrastructure? So far? Nope.

Any views?

C.

 

Scott Galloway - How Amazon is Dismantling Retail

 

 

Thank you for sharing here, Liberty.

 

To be totally honest, this clip is the first time somebody has been able to explain to me, what Amazon is about - in a way, so that I understand it.

 

I haven't spent much time on my interest so far, without been straight out lazy on that matter - so out of pure interest - call it what you want : What are the Amazon plans for the roll out of the business model, outside US/NA?

 

- So far, without doing a lot of search and reading, I haven't found anything on this matter.

 

Amazon is right now not dismantling anything near me, locally - as far as I know. I might be wrong about this, however.

 

The sharing of any insights on this matter will be much appreciated, thanks.

Bezos is just waiting for Sears to get cheaper before he buys, lol.

 

Shouldn't he buy the REIT's like SRG? (create a kind of AWS of physical retail spaces...)

 

Nah, he already said he's not interested in salty snack food companies.

[frugalchief]

Echo Show

 

https://www.amazon.com/dp/B01J24C0TI/ref=nav_swm_ods_swm_tab_kt_launch?pf_rd_p=f11b827f-336a-47cd-a8b6-e38678b41eb3&pf_rd_s=nav-sitewide-msg&pf_rd_t=4201&pf_rd_i=navbar-4201&pf_rd_m=ATVPDKIKX0DER&pf_rd_r=XG6T8YPPCAPNVAN8BW2J&pf_rd_r=XG6T8YPPCAPNVAN8BW2J&pf_rd_p=f11b827f-336a-47cd-a8b6-e38678b41eb3

 

This comes right out of the movies I'd watch as a kid, like Back to the Future.  :o  Of course, I've pre-ordered!

[rkbabang]

 

Amazon’s Latest Market Disruption: 1.7 Million Free Bananas

https://www.wsj.com/articles/amazons-latest-market-disruption-1-7-million-free-bananas-1495463629

[Jurgis]

This is just ... bananas!  8)

 

 

 

More ignores incoming

[villainx]

There's alway money in the banana stand?

[Guest longinvestor]

Pushing $1000

[Liberty]

Pushing $1000

 

Or about $12k/share if you account for the stock splits around 1999...

[Guest longinvestor]

Pushing $1000

 

Or about $12k/share if you account for the stock splits around 1999...

 

And a P/E of 200x. Surely approaching a winner-take-all valuation.

[Liberty]

And a P/E of 200x. Surely approaching a winner-take-all valuation.

 

I don't want to re-litigate amazon, it's been done to death, but I don't think P/E tells us much about the underlying economics and valuation vs IV. It's a red herring.

 

If they wanted to optimize for earnings, they could limit re-investment to what is required for, say, 10% growth (which might not be that much because of the secular e-commerce tailwind), they could serve most of that with their existing infrastructure for a long time, and margins and earnings would balloon. But they'd be creating IV slower than by reinvesting everything they make in new markets and product lines (the way to look at Amazon is as a collection of P&L, some mature and profitable generating cash to help pay for other P&Ls that are in startup mode and needing capital -- in aggregate they try to keep it balanced close to zero). And that's not just for retail. What if AWS tried to optimize for earnings? They could slow their capex a bit, slow their price cuts a bit, etc. They'd grow slower but generate a lot more earnings... So in the short term, they'd look better, pile up lots of cash on the balance sheet, etc, but over time they'd create less IV, because they are one of those businesses that happen to have big reinvestment opportunities and if they don't rush to grab them, eventually someone else will. They've been investing a ton in India, for example, and that could pay off big as that P&L matures, but for now it's depressing company-level earnings.

[KCLarkin]

I don't want to re-litigate amazon, it's been done to death, but I don't think P/E tells us much about the underlying economics and valuation vs IV. It's a red herring.

 

This is certainly true. But there is nothing that tells us much about the underlying economics and valuation of Amazon. Amazon's value is some function of revenue, margins, and ROIC at "steady state". None of those inputs can be estimated within +- 50% since they are likely 10 years in the future.

 

Case A: Future Amazon is a low cost leader, like Walmart, with 2% net margins. If so, maybe it will trade for 15x earnings at "steady state".

Case B: A capital light tech company, like Google, with 20% net margins. If so, maybe it trades at 25x earnings.

 

Let's assume $1T in revenue.

 

Case A: $300B market cap

Case B: $5,000B market cap

 

Both of those scenarios are plausible. But a simple change in assumptions increases valuation 16.7x.

[racemize]

I recently did the same thing, and came out with ranges of values between 300 B and 3 T.  So yeah, lots of plausible outcomes, but my valuation has no predictive value at all.

[clutch]

I don't want to re-litigate amazon, it's been done to death, but I don't think P/E tells us much about the underlying economics and valuation vs IV. It's a red herring.

 

This is certainly true. But there is nothing that tells us much about the underlying economics and valuation of Amazon. Amazon's value is some function of revenue, margins, and ROIC at "steady state". None of those inputs can be estimated within +- 50% since they are likely 10 years in the future.

 

Case A: Future Amazon is a low cost leader, like Walmart, with 2% net margins. If so, maybe it will trade for 15x earnings at "steady state".

Case B: A capital light tech company, like Google, with 20% net margins. If so, maybe it trades at 25x earnings.

 

Let's assume $1T in revenue.

 

Case A: $300B market cap

Case B: $5,000B market cap

 

Both of those scenarios are plausible. But a simple change in assumptions increases valuation 16.7x.

 

And the assumption (and the resulting valuation between Case A and Case B) depends on how much of future revenues you anticipate AWS will generate.

[KCLarkin]

And the assumption (and the resulting valuation between Case A and Case B) depends on how much of future revenues you anticipate AWS will generate.

 

It also depends on the product mix at AWS. If it's just infrastructure, this could be a capital intensive, low margin business. But if they are able to layer on value added services, they could achieve Oracle net margins (24%).

[Liberty]

I don't want to re-litigate amazon, it's been done to death, but I don't think P/E tells us much about the underlying economics and valuation vs IV. It's a red herring.

 

This is certainly true. But there is nothing that tells us much about the underlying economics and valuation of Amazon. Amazon's value is some function of revenue, margins, and ROIC at "steady state". None of those inputs can be estimated within +- 50% since they are likely 10 years in the future.

 

Case A: Future Amazon is a low cost leader, like Walmart, with 2% net margins. If so, maybe it will trade for 15x earnings at "steady state".

Case B: A capital light tech company, like Google, with 20% net margins. If so, maybe it trades at 25x earnings.

 

Let's assume $1T in revenue.

 

Case A: $300B market cap

Case B: $5,000B market cap

 

Both of those scenarios are plausible. But a simple change in assumptions increases valuation 16.7x.

 

Yeah, nobody said investing was easy...

[Liberty]

Josh Tarasoff (2013) comments on AMZN profitability:

 

https://youtu.be/XAubRoZbI9U?t=23m15s

 

There are also other comments about it before in the video, but I don't have a time stamp.

[KCLarkin]

Yeah, nobody said investing was easy...

 

No. But history suggests these are the situations that are prone to bubbles. The marginal buyer can justify any price with slight tweaks to their assumptions.

 

Actually, this one looks pretty simple. Sell if it breaks 200 day MA. Otherwise, ignore fundamentals and hold tight.

[Liberty]

Yeah, nobody said investing was easy...

 

No. But history suggests these are the situations that are prone to bubbles. The marginal buyer can justify any price with slight tweaks to their assumptions.

 

Actually, this one looks pretty simple. Sell if it breaks 200 day MA. Otherwise, ignore fundamentals and hold tight.

 

Agreed. I didn't mean to sound flippant. I just meant you have to look at the industry dynamics and try to understand the business model and make some assumptions about how much value is being created since it's not easy to separate maintenance and growth expenses and to know how many P&Ls are mature and how many are still in investment mode, etc. Not everybody might agree with your assumptions or take the time to dig in, but if it was obvious and everybody agreed, there'd be fewer opportunities out there.

 

At just about any time since its IPO you could've invested in AMZN and done better than the market over a period of years, so so far, it has been undervalued. It reminds me of a piece I read a year or two ago about how for the first few decades of Walmart's existence you could've bought it at multiples that seemed quite outrageous yet done better than the market. We'll see what the future holds.

 

Each should do what they're comfortable with, though. Some people prefer a lot of quantitative certainty, and there are certainly companies that offer that because of their models. Others might just need to know that the man is fat without knowing his exact weight, relying instead on other qualitative aspects to become comfortable. Both styles will lead to mistakes (including of omission), I don't students of one school should dismiss students of the other, especially since the master (Buffett) has been straddling the two for a while.

[abyli]

Yeah, nobody said investing was easy...

 

No. But history suggests these are the situations that are prone to bubbles. The marginal buyer can justify any price with slight tweaks to their assumptions.

 

Actually, this one looks pretty simple. Sell if it breaks 200 day MA. Otherwise, ignore fundamentals and hold tight.

 

Agreed. I didn't mean to sound flippant. I just meant you have to look at the industry dynamics and try to understand the business model and make some assumptions about how much value is being created since it's not easy to separate maintenance and growth expenses and to know how many P&Ls are mature and how many are still in investment mode, etc. Not everybody might agree with your assumptions or take the time to dig in, but if it was obvious and everybody agreed, there'd be fewer opportunities out there.

 

At just about any time since its IPO you could've invested in AMZN and done better than the market over a period of years, so so far, it has been undervalued. It reminds me of a piece I read a year or two ago about how for the first few decades of Walmart's existence you could've bought it at multiples that seemed quite outrageous yet done better than the market. We'll see what the future holds.

 

Well said! Real growth stock is always undervalued by the market!

[Liberty]

Well said! Real growth stock is always undervalued by the market!

 

Well, not "always" unless your definition of "real" makes it tautological ;)

 

I'm agnostic on growth. Growth sometimes destroys value. But highly profitable growth, especially if it's obfuscated, can certainly lead to interesting situations where value creation if under-appreciated.

[Liberty]

Internet History Podcast: 118. The Birth of Amazon’s 3rd Party Platform with John Rossman

https://overcast.fm/+Bj7wXCyv8

[KCLarkin]

Well said! Real growth stock is always undervalued by the market!

 

Well, not "always" unless your definition of "real" makes it tautological ;)

 

I'm agnostic on growth. Growth sometimes destroys value. But highly profitable growth, especially if it's obfuscated, can certainly lead to interesting situations where value creation if under-appreciated.

 

First, it is incredibly difficult to identify "real growth stocks" a priori. Were Yahoo, AOL, Nortel, Lucent, JDS, Netscape "real growth" stocks? It would be hard to convince anyone in 1999 that these weren't "real growth" stocks.

 

Second, even in the case of "real growth stocks", it is common for them to become overvalued. Cisco, Microsoft, and Walmart are prominent examples from the dotcom era. But please also read the history of the Go Go Years and the Nifty Fifty.

 

---

Of course, it is possible to point to exceptions like Apple, Amazon, Priceline, or Berkshire. But the reasons why these examples are so obvious is that they are exceptional. Look at Table 2 in this chart:

https://blogs.wsj.com/public/resources/documents/nasdaqcompretrospective.pdf

 

None of the top 10 Nasdaq stocks had a higher market cap in 2013 than they had in 1999 (based on my back of the napkin work). The big winners from 1999 (Apple, Amazon, Priceline) were relatively tiny.

[rkbabang]

An interesting review of one of the Amazon bookstores.

 

"what’s most strange about Amazon’s bookstore is what it most reminds me of — one of its victims: Borders. You would not walk into an Amazon Books and mistake it for a mom & pop, independent shop. Nor would you mistake it for a throwback library. It looks like what Borders used to look like before Amazon killed Borders. It looks like salt in an old wound. Or a monument built on top of a gravesite. So yeah, it’s a bit uncanny walking into one of these stores — at least the one I visited in New York City. More specifically, Amazon Books feels like Borders if Borders had been created in 2017."

 

https://500ish.com/amazon-just-invented-borders-books-d2d6c933b133

 

[Liberty]

An interesting review of one of the Amazon bookstores.

 

"what’s most strange about Amazon’s bookstore is what it most reminds me of — one of its victims: Borders. You would not walk into an Amazon Books and mistake it for a mom & pop, independent shop. Nor would you mistake it for a throwback library. It looks like what Borders used to look like before Amazon killed Borders. It looks like salt in an old wound. Or a monument built on top of a gravesite. So yeah, it’s a bit uncanny walking into one of these stores — at least the one I visited in New York City. More specifically, Amazon Books feels like Borders if Borders had been created in 2017."

 

https://500ish.com/amazon-just-invented-borders-books-d2d6c933b133

 

The main goal of these seems to be to learn from experimentation, and to sign people up for Prime memberships (which have all kinds of benefits for Amazon). It's basically a sales office that attract people in with books.