AMZN - Amazon.com Inc.

[KCLarkin]

What are the chances that Amazon's mature retail businesses don't get margins comparable to WMT or COST? Is anything about the amazon model inherently less efficient or profitable? Their prices aren't that different. Seems to me like it should be even better, since all they need are huge increasingly automated distribution centers/warehouses with fewer employees, fewer niceties (customers don't see them), and a lot more throughput (rather than holding inventories on the shelves for people to see), and secular tailwind from the shift to e-commerce. And it seems to me like Amazon is at least getting as good a deal from suppliers as WMT and COST. Over time as you have more and more FCs close to big population centers, you can start to offer 2-day and 1-day shipping (very hard to match for most competitors) and cut into your shipping costs by leasing your own planes and ships and create your own last mile network (you first cherry-pick the highest-return routes, leaving UPS and Fedex with the rest).

 

I haven't done the math lately but I don't thing you get a valuation anywhere near $500B if you assume AMZN is going to have WMT or COST margins. You need to assume much higher margins.

[Jurgis]

Some reasons why we don't do grocery delivery to home yet:

 

- Novelty factor. I.e. we don't know how good/bad experience is and some of the issues below; also this means take some issues below with caveat that we have not tried it, so perhaps the issue does not exist/is not bad. But see below my attempts to look at Peapod.

- Discounts: does the store apply discounts/coupons to online orders. Peapod says yes, but not clear how it works in practice.

- Vegetables/fruits ripeness. We buy a lot of fruits/vegetables. Not sure how good the ordering of these is and how to deal with ripeness/quality. At store you can touch/select. Online, not really. I've heard some online ordering allow you to specify ripeness, but I'm skeptical. Also, will the online store have all veggies available or only the prepackaged expensive ones? Peapod seems to carry both packaged and regular, but I'm still not 100% convinced they have all we buy.

- Availability of specific products/brands. Also in general: will online store have all the brands/SKUs the store has? Only some? I just tried to look up 1 quart whole milk on Peapod - not available. Romano cheese - the one we are buying not available. "Fruits of the Nile" juice - not available. These are all things that we buy at Stop&Shop that is Peapod parent (?). I think this is pretty much a deal killer. (Could stop here, but for completeness sake gonna continue).

- Frozen/perishable item delivery. I guess this is handled somehow. Not sure how well.

- Costs. Are online prices the same as in store? Higher? Do they apply same discounts as in store? What are the delivery/overhead/etc costs? I just looked up Peapod and they charge $10 for $60-100 orders. That's a lot (although I understand that my time possibly costs more). There is a minimum $60 order - we sometimes buy less than that at the store, but perhaps it's not a big deal...

- UI: how good is the search/cart/selection UI online. Especially if the service is through something like 3rd party service like Instacart. Peapod UI/search seem to be good/OK.

- Some personal reasons skipped.

 

So pretty much no deal for us right now.

YMMV.

 

Edit: Sorry if this is OT a bit.

Edit2. I could not experiment with Amazon for this, since Amazon Fresh product selection is even worse than Peapod. Not quite true. Amazon is weird. There's more product availability for some categories, but with various restrictions and quirks. E.g. Romano cheese is "Amazon Fresh" only. Fruit of the Nile juice is only 6-pack and only regular Amazon. I think I'll chalk this to crappy UI and stay with: It's way more "no go" than Peapod for us.

[Liberty]

What are the chances that Amazon's mature retail businesses don't get margins comparable to WMT or COST? Is anything about the amazon model inherently less efficient or profitable? Their prices aren't that different. Seems to me like it should be even better, since all they need are huge increasingly automated distribution centers/warehouses with fewer employees, fewer niceties (customers don't see them), and a lot more throughput (rather than holding inventories on the shelves for people to see), and secular tailwind from the shift to e-commerce. And it seems to me like Amazon is at least getting as good a deal from suppliers as WMT and COST. Over time as you have more and more FCs close to big population centers, you can start to offer 2-day and 1-day shipping (very hard to match for most competitors) and cut into your shipping costs by leasing your own planes and ships and create your own last mile network (you first cherry-pick the highest-return routes, leaving UPS and Fedex with the rest).

 

I haven't done the math lately but I don't thing you get a valuation anywhere near $500B if you assume AMZN is going to have WMT or COST margins. You need to assume much higher margins.

 

That's not what I said. I said their own retail operations would probably have that or better. Then the 3P stuff significantly higher, then AWS higher. But the margins aren't the whole story, the turnover, growth, and runway over time are also important factors, as well as options in other fields (they're building a Netflix competitor, they have a new fast-growing business with Alexa (in their own devices and licensed to others), they seem to want to slowly build a Fedex/UPS competitor, go into groceries, go against pharmacies, auto parts, etc)...

[KCLarkin]

That's not what I said. I said their own retail operations would probably have that or better.

 

Sure but first we need to agree on what their retail operations are worth. I'm not convinced they get WMT or COST margins. Their free shipping and no hassle returns aren't cheap. And WMT and COST don't need robots, because their customers pick-and-pack for free.

https://www.cnbc.com/2017/11/02/28-year-olds-company-makes-millions-selling-walmart-buys-on-amazon.html

 

I'm not disagreeing with what you are saying. But all those things are true if Amazon is selling for $100B or $500B or $3T. Anyway, I've spent enough time analyzing Amazon. I must be a stoic and accept that I will miss this rocket ship. But that's okay. There will be another one soon enough.

[dwy000]

What I don't get is why Amazon is better positioned to win in spaces that there are other very well established and efficient players.  Online shopping and cloud infrastructure were areas that Amazon was in at inception and now has scale to win.  I don't know what gives them a competitive edge against players who dominate some pretty competitive industries where they really aren't doing anything new or different.  I find it hard to believe that Amazon can do global package delivery more efficiently than FedEx, or pharma more efficiently than CVS or even online video better than Netflix.  The one competitive advantage they seem to bring is that they don't have to be profitable so can undercut prices (and Netflix is in the same position so beating out Prime).  But just because they are Amazon doesn't mean they are better at everything than everyone else.

[JSArbitrage]

Anyway, I still don't see how Amazon/WFM competes with Walmart in grocery. Walmart already has all the elements for online ordering and delivery. And they have a massive scale advantage plus a dense store network.

 

Just to be devil's advocate - who has better share of mind?  Amazon literally wins awards for having the best consumer satisfaction on the planet.  If I need to buy anything non-grocery related, I always go to Amazon.  I don't even price compare; I trust Amazon gives me a reasonable price.  I also use Prime Now if I need something quickly.  If I opened Amazon's website tomorrow and there was a grocery section where I could get delivery, HEB (my primary go-to here in Texas) would be toast and I actually really like HEB.  That's how much I use Amazon.

[Guest Cameron]

Average order size for e-commerce is about $80, half of amazons orders are through 3rd party sellers. Based on survey's of 30,000 prime customers I see an average order size of $47

 

Based on the latest annual report they had $94 billion in product sales, so they sold around $188 billion on their platform. They get 15% from every 3P sale, so I can assume they get about $14 billion in revenue from the $94 billion in 3P sales. AWS had $12 billion in sales and those both go to the service line. So I'm left with $15 billion out of the $41 billion of service revenue, can we say 75% comes from prime memberships? 112 million members? The rest goes to FBA fees they collect.

 

So for the sake of argument if each order is $50 they get $7.50 each 3p sale. You have to pay to ship the item to Amazon but they then pay to ship the item to the buyer, so how much does Amazon get out of that $7.50? How often is someone ordering a CRaP item that they can't make money on and how much goes to shipping cost.

 

They use loss leaders like I have never seen before that they keep in their warehouses like Misbehaving: The Making of Behavioral Economics, they get about a 55% discount from the big book suppliers because book suppliers have to pay Amazon to "advertise" the product. They make the money on the fringes where they can charge full MSRP and they don't house the item but how often does the profit they make from these fringe products get eaten up by loss leaders.

 

But lets say Amazon has  inline margins with WMT and COST or even better, so COST has a 2.17% profit margin WMT has 2.35%. I look at Amazon more as COST then I do WMT so we'll take the $94 billion in product sales and the $11.2 billion in prime and I get revenue of 105.2 from just barebones retail with 2.5%-3.0% profit margins I get net income of 2.63-3.156 billion. Lets go crazy and say Amazon retail is worth 40x earnings so I get $105.5-126.24 billion.

 

turning to AWS, again I'm really not sure how to value this I don't know cost of capital, but AWS has $12 billion in sales $3.1 billion in income I could just not even get into it and say throw a 40x on AWS and I get $124 billion.

 

So far, I got between $230-250 billion valuation. Amazon bought Whole Foods for $13.7 but because Bezo's is a God amongst men its worth now $20 billion once the pen left the check that Bezo's handed over to shareholders. So $250-270 billion. Kindle is sold at cost but lets say $15 billion and another $15 billion for Alexa. 265-285 now. For the fun of it FBA is worth $100 billion as well.

365-385, that means management is worth $140-160 billion and because Bezo's again is a God amongst men the market is undervaluing him.

 

 

So maybe I can understand $1 trillion market cap soon. I'll be backing up the truck .

 

 

[kab60]

Agree with above. I'm reading Brad Thomas' book and find it extremely interesting how Amazon has grown and keeps evolving, but the number of failures is staggering (and probably part of the strength), and yet it seems priced like it'll turn everything it touches into gold.

[JRM]

What I don't get is why Amazon is better positioned to win in spaces that there are other very well established and efficient players.  Online shopping and cloud infrastructure were areas that Amazon was in at inception and now has scale to win.  I don't know what gives them a competitive edge against players who dominate some pretty competitive industries where they really aren't doing anything new or different.  I find it hard to believe that Amazon can do global package delivery more efficiently than FedEx, or pharma more efficiently than CVS or even online video better than Netflix.  The one competitive advantage they seem to bring is that they don't have to be profitable so can undercut prices (and Netflix is in the same position so beating out Prime).  But just because they are Amazon doesn't mean they are better at everything than everyone else.

 

Amazon is willing to operate their business with slim to no margins.  You can't compete against a company with their scale and willingness to not earn a profit...and somehow the market gives them a free pass.  I read a lot of long winded and sometimes intelligent attempts to explain Amazon's valuation.  The best were usually the most simplistic. 

 

If you had a company that was guaranteed to operate at a break even, then the value of your business would be the net asset value with a premium for the implied growth.  I'm not saying Amazon should be valued this way, but why should they be given a free pass? 

 

I have to think we're close to peak Amazon.  Its simply ridiculous to think they're going to get a foot in the door of some of the industries they're trying to disrupt without a better retail presence. 

 

The recent earnings weren't even that good, and the market went crazy.  The earnings estimates were revised down from $1.50 to $0.05 in 18 months.  OF COURSE they beat estimates.  What a joke. 

 

With that said Amazon is a great company.  I'm not bitter I missed out on it.  There will be others that make more sense.  Amazon is probably a lot more like Wal-Mart and Microsoft during their hyperbolic phases as well.  Both had staying power and are great companies as well.

[Guest Cameron]

What I don't get is why Amazon is better positioned to win in spaces that there are other very well established and efficient players.  Online shopping and cloud infrastructure were areas that Amazon was in at inception and now has scale to win.  I don't know what gives them a competitive edge against players who dominate some pretty competitive industries where they really aren't doing anything new or different.  I find it hard to believe that Amazon can do global package delivery more efficiently than FedEx, or pharma more efficiently than CVS or even online video better than Netflix.  The one competitive advantage they seem to bring is that they don't have to be profitable so can undercut prices (and Netflix is in the same position so beating out Prime).  But just because they are Amazon doesn't mean they are better at everything than everyone else.

 

That is their advantage and it does make them better than everyone else. If my investors, creditors, and those who lease me equipment let me sell my banana's at cost and your investors, creditors, and those who lease you equipment panic every time you don't make a profit on your selling of banana's then its just a game of who can hold their breath under water long enough. I wish I was joking about Bezo being worth 150 billion to the company because he probably is. When playing that game you have to know when to call it quits or else you could put your company in financial trouble and lose it all if they bet to big against a company whose investors, creditors, and those who lease them equipment operate with the same mindset as Amazon's. Netflix as you said would come to my mind as a company that has this ability on the other hand they are going to eat W.W. Graingers lunch.

[rkbabang]

Some reasons why we don't do grocery delivery to home yet:

 

- Novelty factor. I.e. we don't know how good/bad experience is and some of the issues below; also this means take some issues below with caveat that we have not tried it, so perhaps the issue does not exist/is not bad. But see below my attempts to look at Peapod.

- Discounts: does the store apply discounts/coupons to online orders. Peapod says yes, but not clear how it works in practice.

- Vegetables/fruits ripeness. We buy a lot of fruits/vegetables. Not sure how good the ordering of these is and how to deal with ripeness/quality. At store you can touch/select. Online, not really. I've heard some online ordering allow you to specify ripeness, but I'm skeptical. Also, will the online store have all veggies available or only the prepackaged expensive ones? Peapod seems to carry both packaged and regular, but I'm still not 100% convinced they have all we buy.

- Availability of specific products/brands. Also in general: will online store have all the brands/SKUs the store has? Only some? I just tried to look up 1 quart whole milk on Peapod - not available. Romano cheese - the one we are buying not available. "Fruits of the Nile" juice - not available. These are all things that we buy at Stop&Shop that is Peapod parent (?). I think this is pretty much a deal killer. (Could stop here, but for completeness sake gonna continue).

- Frozen/perishable item delivery. I guess this is handled somehow. Not sure how well.

- Costs. Are online prices the same as in store? Higher? Do they apply same discounts as in store? What are the delivery/overhead/etc costs? I just looked up Peapod and they charge $10 for $60-100 orders. That's a lot (although I understand that my time possibly costs more). There is a minimum $60 order - we sometimes buy less than that at the store, but perhaps it's not a big deal...

- UI: how good is the search/cart/selection UI online. Especially if the service is through something like 3rd party service like Instacart. Peapod UI/search seem to be good/OK.

- Some personal reasons skipped.

 

So pretty much no deal for us right now.

YMMV.

 

Edit: Sorry if this is OT a bit.

Edit2. I could not experiment with Amazon for this, since Amazon Fresh product selection is even worse than Peapod. Not quite true. Amazon is weird. There's more product availability for some categories, but with various restrictions and quirks. E.g. Romano cheese is "Amazon Fresh" only. Fruit of the Nile juice is only 6-pack and only regular Amazon. I think I'll chalk this to crappy UI and stay with: It's way more "no go" than Peapod for us.

 

What was nice is that the things you buy every week can be already saved so that you don't have to re-search for them.  We never had a problem with the quality of the fresh fruits or veggies.  They always looked good.  Yes the bananas would be on the green side, but  if you get them every week you always have some fresh ones available.  Avocados were random ripeness, but I've found that the case at the store too, sometimes they only have green hard as a rock avocados and sometimes they only have too soft Avocados that you will need to eat that day.  Other fruits and veggies are easier an apple, a green pepper, or an onion is always fine.  Meats were always good and not too close to sell by dates.  We buy our milk and eggs at a local farm anyway so I can't comment about those.  Yes, I suspect the cost/discounts may be an issue, but the convenience made it worth it.  After you've used it for a while you just add all your saved items to your cart, customize it a little if you want anything else and checkout.  Your grocery shopping is done in 5 minutes without leaving the house.

 

EDIT: Also I forgot to mention that they pack the cold stuff together and I think they put it in refrigerator or coolers in the truck, because it always comes into the house very cold.

 

[Liberty]

If these are numbers you're comfortable with, Cameron, that's fine. I'll note that you make it sound like you're being generous but are using almost year old numbers (in a fast-growing business) and giving retail operations a margin that is lower than the margin that WMT has had in many of the past years when I think the AMZN model is quite a bit more efficient and Amazon's gross margins are a lot closer to WMT than COST (higher, actually, but you can make adjustments for AWS). I'll also note that giving AWS 40x isn't being generous. A dominant low-cost operator, high-margin business with recurring revenue that is successfully going up the value chain while growing at 40-50% CAGR while only having addressed a very low % of its potential market usually can't be bought for a 2.5% net yield. If you find one elsewhere, please let me know via private message.

[KCLarkin]

I'll also note that giving AWS 40x isn't being generous. A dominant low-cost operator, high-margin business with recurring revenue that is successfully going up the value chain while growing at 40-50% CAGR while only having addressed a very low % of its potential market usually can't be bought for a 2.5% net yield. If you find one elsewhere, please let me know via private message.

 

I know it doesn't fit all of those criteria but Facebook seems to be a lot cheaper than 40x.

[Guest Cameron]

I'll try this again,

 

I felt the margins of Amazon's retail was generous. I read all the time that they have startup retail segments that cancel the mature ones and thats why they aren't profitable.

 

It might even be better to break up their North American retail from their International considering the former should be more mature. 

 

Amazon borrowed the Costco model and I would be surprised if they actually made money on the actual sales but either way.

 

They allocate Prime Memberships to each segment when they break it out in their report and for just North America they have $1.84 billion in profit before stock based compensation on $86.482 billion in sales slap 50x on that and I get $92.3 billion double their margin and its worth $172 billion. International isn't making any money, but that's where they allocate the startup retail operations I guess, so its worth 2x rolling twelve months sales at $92.2 billion. I got between $184.5-264.2B.

 

I'm curious to know what numbers you used to conclude they have better retail economics since I'm having trouble pealing everything away. Amazon had a consistent 20% gross margin until 2012 and has slowly gone up every year which makes sense considering AWS would distort the picture.

 

On the topic of AWS, like I said earlier I don't know how to value it because I can only guess how capital intensive it is based on looking at off-balance sheet arrangements, I wasn't trying to be generous, from putting some of the numbers together its clear they aren't making $4 billion from it since it looks like all the money is going towards paying the leases if not the balance sheet would look a whole lot different. But either way $4 billion times 50-100x earnings $200-400 billion. $384.5-646.2B. WholeFoods $30 billion, so is Alexa, and $20 billion for kindle. $464-726B. They include FBA fees in the North America and International segments so I normally wouldn't throw a value but lets say its worth $70B. 534B-796B.     

 

Bezo is worth $100 billion to the company, there is quite literally no one else that I could think of that could run the company like he does and that's one of their risk factors in their reports, so I'm going to believe them. If he quit or got fired I wouldn't be surprised if the stock fell 30%.

 

634B-896B, I could understand 1T, but everything has to go perfect like it has for them.

[Liberty]

I'll also note that giving AWS 40x isn't being generous. A dominant low-cost operator, high-margin business with recurring revenue that is successfully going up the value chain while growing at 40-50% CAGR while only having addressed a very low % of its potential market usually can't be bought for a 2.5% net yield. If you find one elsewhere, please let me know via private message.

 

I know it doesn't fit all of those criteria but Facebook seems to be a lot cheaper than 40x.

 

Yeah, and I don't think it's expensive at all...

[dwy000]

Besos just sold 1M shares.  His largest sale ever. 

[bci23]

Besos just sold 1M shares.  His largest sale ever.

 

He has said before he will be selling $1b/yr of stock to fund Blue Origin

[Liberty]

Besos just sold 1M shares.  His largest sale ever.

 

He has said before he will be selling $1b/yr of stock to fund Blue Origin

 

https://twitter.com/arjunsethi/status/735275067722997761

[Guest ajc]

 

Average order size for e-commerce is about $80, half of amazons orders are through 3rd party sellers. Based on survey's of 30,000 prime customers I see an average order size of $47

 

Based on the latest annual report they had $94 billion in product sales, so they sold around $188 billion on their platform. They get 15% from every 3P sale, so I can assume they get about $14 billion in revenue from the $94 billion in 3P sales. AWS had $12 billion in sales and those both go to the service line. So I'm left with $15 billion out of the $41 billion of service revenue, can we say 75% comes from prime memberships? 112 million members? The rest goes to FBA fees they collect.

 

So for the sake of argument if each order is $50 they get $7.50 each 3p sale. You have to pay to ship the item to Amazon but they then pay to ship the item to the buyer, so how much does Amazon get out of that $7.50? How often is someone ordering a CRaP item that they can't make money on and how much goes to shipping cost.

 

They use loss leaders like I have never seen before that they keep in their warehouses like Misbehaving: The Making of Behavioral Economics, they get about a 55% discount from the big book suppliers because book suppliers have to pay Amazon to "advertise" the product. They make the money on the fringes where they can charge full MSRP and they don't house the item but how often does the profit they make from these fringe products get eaten up by loss leaders.

 

But lets say Amazon has  inline margins with WMT and COST or even better, so COST has a 2.17% profit margin WMT has 2.35%. I look at Amazon more as COST then I do WMT so we'll take the $94 billion in product sales and the $11.2 billion in prime and I get revenue of 105.2 from just barebones retail with 2.5%-3.0% profit margins I get net income of 2.63-3.156 billion. Lets go crazy and say Amazon retail is worth 40x earnings so I get $105.5-126.24 billion.

 

turning to AWS, again I'm really not sure how to value this I don't know cost of capital, but AWS has $12 billion in sales $3.1 billion in income I could just not even get into it and say throw a 40x on AWS and I get $124 billion.

 

So far, I got between $230-250 billion valuation. Amazon bought Whole Foods for $13.7 but because Bezo's is a God amongst men its worth now $20 billion once the pen left the check that Bezo's handed over to shareholders. So $250-270 billion. Kindle is sold at cost but lets say $15 billion and another $15 billion for Alexa. 265-285 now. For the fun of it FBA is worth $100 billion as well.

365-385, that means management is worth $140-160 billion and because Bezo's again is a God amongst men the market is undervaluing him.

 

 

So maybe I can understand $1 trillion market cap soon. I'll be backing up the truck .

 

 

Great post.

 

A while back I researched WMT for when it was growing at the same rate. AMZN's operating metrics weren't noticeably better. It sold for 1x sales I think, even though it was every bit as impressive as AMZN in its day.

 

AWS has a slower growth rate and worse operating margins than FB, yet FB sells for 13x FY2017 revenues. That's in line with what Google and others traded at during similar phases.

I don't see a logical reason why AWS deserves more than a 10x multiple if you compare it to other great past or current tech businesses, especially given future prices cuts and competition.

 

Amazon India grows revenues at around 100% currently. When non-capital intensive Airbnb grew at 90% in mid-2016 it was valued at 17x sales. It has way better economics than Amazon India.

You can go through every AMZN business like this. From what I can tell, the current overall market valuation math doesn't work.

 

I think one problem is there's a small group of high volume posters on COBF who do no original valuation work but dominate threads by talking endlessly about various FinTwit viewpoints. Posts like yours get dismissed or glossed over by those few who frankly don't know what they don't know. They can't publicly and directly admit to being wrong on anything important either, which causes further problems. Unfortunately, through sheer volume and speed they often succeed at obfuscating their stupidity.

 

I agree with your posts that say AMZN looks expensive.

However, I definitely wonder if it's worth compromising with those few who don't think independently, lack the intellectual honesty needed to admit their ignorance, or haven't done or presented their own valuation work. I also wonder if it's not better to call out the arrogance of their approach as has been done in other threads.

I'm not entirely convinced letting ignorance of that kind go unchecked is useful, even if I'm sure that's exactly what those few posters would 100% prefer.

 

 

 

[rkbabang]

This guy is providing a much needed service.  I'd much rather pay more to buy something on Amazon than need to walk into a Walmart.  I guess I'm not the only one.

 

This 28-year-old's company makes millions buying from Walmart and selling on Amazon

 

[Guest Cameron]

This guy is providing a much needed service.  I'd much rather pay more to buy something on Amazon than need to walk into a Walmart.  I guess I'm not the only one.

 

This 28-year-old's company makes millions buying from Walmart and selling on Amazon

 

It sounds like a bad version of flash boys.

[Jurgis]

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/current-economy/80/

[Liberty]

Great post.

 

A while back I researched WMT for when it was growing at the same rate. AMZN's operating metrics weren't noticeably better. It sold for 1x sales I think, even though it was every bit as impressive as AMZN in its day.

 

AWS has a slower growth rate and worse operating margins than FB, yet FB sells for 13x FY2017 revenues. That's in line with what Google and others traded at during similar phases.

I don't see a logical reason why AWS deserves more than a 10x multiple if you compare it to other great past or current tech businesses, especially given future prices cuts and competition.

 

Amazon India grows revenues at around 100% currently. When non-capital intensive Airbnb grew at 90% in mid-2016 it was valued at 17x sales. It has way better economics than Amazon India.

You can go through every AMZN business like this. From what I can tell, the current overall market valuation math doesn't work.

 

I think one problem is there's a small group of high volume posters on COBF who do no original valuation work but dominate threads by talking endlessly about various FinTwit viewpoints. Posts like yours get dismissed or glossed over by those few who frankly don't know what they don't know. They can't publicly and directly admit to being wrong on anything important either, which causes further problems. Unfortunately, through sheer volume and speed they often succeed at obfuscating their stupidity.

 

I agree with your posts that say AMZN looks expensive.

However, I definitely wonder if it's worth compromising with those few who don't think independently, lack the intellectual honesty needed to admit their ignorance, or haven't done or presented their own valuation work. I also wonder if it's not better to call out the arrogance of their approach as has been done in other threads.

I'm not entirely convinced letting ignorance of that kind go unchecked is useful, even if I'm sure that's exactly what those few posters would 100% prefer.

 

Original valuation work is looking at a bunch of revenue multiples from things that are kinda vaguely comparable in different industries? Wow. I guess I should start doing that then... I'm sure that with this methodology you could have shorted Amazon and Google and Facebook and Netflix and Visa and Mastercard right form their IPOs...  ::)

 

Thanks for the thinly veiled insults. I like you too.

[Guest Cameron]

Great post.

 

A while back I researched WMT for when it was growing at the same rate. AMZN's operating metrics weren't noticeably better. It sold for 1x sales I think, even though it was every bit as impressive as AMZN in its day.

 

AWS has a slower growth rate and worse operating margins than FB, yet FB sells for 13x FY2017 revenues. That's in line with what Google and others traded at during similar phases.

I don't see a logical reason why AWS deserves more than a 10x multiple if you compare it to other great past or current tech businesses, especially given future prices cuts and competition.

 

Amazon India grows revenues at around 100% currently. When non-capital intensive Airbnb grew at 90% in mid-2016 it was valued at 17x sales. It has way better economics than Amazon India.

You can go through every AMZN business like this. From what I can tell, the current overall market valuation math doesn't work.

 

I think one problem is there's a small group of high volume posters on COBF who do no original valuation work but dominate threads by talking endlessly about various FinTwit viewpoints. Posts like yours get dismissed or glossed over by those few who frankly don't know what they don't know. They can't publicly and directly admit to being wrong on anything important either, which causes further problems. Unfortunately, through sheer volume and speed they often succeed at obfuscating their stupidity.

 

I agree with your posts that say AMZN looks expensive.

However, I definitely wonder if it's worth compromising with those few who don't think independently, lack the intellectual honesty needed to admit their ignorance, or haven't done or presented their own valuation work. I also wonder if it's not better to call out the arrogance of their approach as has been done in other threads.

I'm not entirely convinced letting ignorance of that kind go unchecked is useful, even if I'm sure that's exactly what those few posters would 100% prefer.

 

Original valuation work is looking at a bunch of revenue multiples from things that are kinda vaguely comparable in different industries? Wow. I guess I should start doing that then... I'm sure that with this methodology you could have shorted Amazon and Google and Facebook and Netflix and Visa and Mastercard right form their IPOs...  ::)

 

Thanks for the thinly veiled insults. I like you too.

 

My silence in relation to his post shouldn't be taken as an endorsement.

 

Was trying to see what kind of multiple would be needed to justify the valuation. Talking about amazon's valuation is like talking about politics, it brings the worst out of people.

[Guest Cameron]

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/current-economy/80/

 

Doesn't that sort of imply that Amazon isn't providing the lowest price.