AMZN - Amazon.com Inc.

[KCLarkin]

A lot of the arguments about inertia were the same arguments that people had for Uber, AirBNB, and even e-commerce in general (including most recently apparel)

 

AirBNB is 10 years old. It still has only a tiny market share (say 3-4%) in major markets. So I think inertia is alive and well in that market. And some of that revenue is incremental (not stolen from hotels) -- for example when my parents came to visit, I put them into an AirBNB.

 

EDIT: Just looked at the performance of Marriott over the past 5 years. Not bad. Though I'm not sure a 30x PE is justified.

 

Uber is slightly different -- they illegally broke into a regulated monopoly where supply was artificially constrained.

 

EDIT: Perhaps a better example is AWS. But even AWS is 11 years. It is the clear leader in cloud infrastructure but is only a tiny fraction of IT spending.

 

--

But we are looking at this from a different perspective:

- From the Amazon bulls perspective, these are large markets with attractive economics. The fact that it might take 10 years or more to break into these markets, doesn't diminish the opportunity.

- For someone who is buying CVS at 11x FCF, it makes a big difference how long it takes for Amazon to enter.

 

But I also don't see why a majority of common, routine drugs couldn't be sold at lower prices online by a company that hires a bunch of pharmacists.

 

Costco already offers low prices online. It only has 0.6% market share (and that includes the warehouse stores). Walmart also offers cheaper drugs. It only has 5% market share (including retail stores). I'm not saying Amazon can't figure this out eventually. I'm just saying it is much harder in practice than it is in theory. Amazon has been looking at entering this category since the 90s. The reason they haven't entered yet is because it is hard.

 

But again, this isn't specific to drugs. It also applies to grocery, industrial distributors, auto parts, and other Amazon victims. It just happens that the drugstores/PBMs are a category that offer attractive valuations combined with the least advanced "amazon effect". Fastenal (25x) and ORLY (18x) also have Amazon risk. The only reason why CVS/WBA seem to be selling at such a discount is because of the availability bias. There is a lot of discussion about Amazon and prescription drugs right now. Once they actually enter the category, the buzz will die down and CVS/WBA will go back to trading on fundamentals.

 

[Liberty]

A lot of the arguments about inertia were the same arguments that people had for Uber, AirBNB, and even e-commerce in general (including most recently apparel)

 

AirBNB is 10 years old. It still has only a tiny market share (say 3-4%) in major markets. So I think inertia is alive and well in that market. And some of that revenue is incremental (not stolen from hotels) -- for example when my parents came to visit, I put them into an AirBNB. 

 

AirBNB started from nothing, so becoming basically a common noun and getting a 30bn+ valuation in 10 years is nothing to sneeze at. Obviously Amazon isn't starting from nothing when they enter a new market, so that can have some advantages (like we saw in apparel recently).

 

I'll take your word on market share (I also googled "AirBNB market share" and found that same report you cite, but I haven't taken the time to read it so I don't know how accurate it is and what markets they looked at).

 

Uber is slightly different -- they illegally broke into a regulated monopoly where supply was artificially constrained.

 

My point wasn't to say that the business model was the same, just that inertia can change rapidly if you offer good value. People went from "that's so weird, I wouldn't do that" to "Hey, let's call a Uber" in a pretty short amount of time.

 

If I can suddenly order my asthma meds online and get a better price, I'll do that for sure. That's a lower psychological barrier, IMO, than sleeping in a stranger's guest bedroom.

 

--

But we are looking at this from a different perspective:

- From the Amazon bulls perspective, these are large markets with attractive economics. The fact that it might take 10 years or more to break into these markets, doesn't diminish the opportunity.

- For someone who is buying CVS at 11x FCF, it makes a big difference how long it takes for Amazon to enter.

 

But I also don't see why a majority of common, routine drugs couldn't be sold at lower prices online by a company that hires a bunch of pharmacists.

 

Costco already offers low prices online. It only has 0.6% market share (and that includes the warehouse stores). Walmart also offers cheaper drugs. It only has 5% market share (including retail stores). I'm not saying Amazon can't figure this out eventually. I'm just saying it is much harder in practice than it is in theory. Amazon has been looking at entering this category since the 90s. The reason they haven't entered yet is because it is hard.

 

But again, this isn't specific to drugs. It also applies to grocery, industrial distributors, auto parts, and other Amazon victims. It just happens that the drugstores/PBMs are a category that offer attractive valuations combined with the least advanced "amazon effect". Fastenal (25x) and ORLY (18x) also have Amazon risk. The only reason why CVS/WBA seem to be selling at such a discount is because of the availability bias. There is a lot of discussion about Amazon and prescription drugs right now. Once they actually enter the category, the buzz will die down and CVS/WBA will go back to trading on fundamentals.

 

Do you think that Amazon is the only reason for the depressed valuations? The whole US healthcare/pharma sector has been going through a tough period lately... Personally, I'm not looking at those as investments, so I don't have much to add on that side. I never said the market was pricing those things rationally or not or that Amazon would crush everyone. I just think this is indeed a large, attractive market for Amazon to go in if they can figure out a model that works.

[Guest Cameron]

A lot of the arguments about inertia were the same arguments that people had for Uber, AirBNB, and even e-commerce in general (including most recently apparel)

 

AirBNB is 10 years old. It still has only a tiny market share (say 3-4%) in major markets. So I think inertia is alive and well in that market. And some of that revenue is incremental (not stolen from hotels) -- for example when my parents came to visit, I put them into an AirBNB. 

 

AirBNB started from nothing, so becoming basically a common noun and getting a 30bn+ valuation in 10 years is nothing to sneeze at. Obviously Amazon isn't starting from nothing when they enter a new market, so that can have some advantages (like we saw in apparel recently).

 

I'll take your word on market share (I also googled "AirBNB market share" and found that same report you cite, but I haven't taken the time to read it so I don't know how accurate it is and what markets they looked at).

 

Uber is slightly different -- they illegally broke into a regulated monopoly where supply was artificially constrained.

 

My point wasn't to say that the business model was the same, just that inertia can change rapidly if you offer good value. People went from "that's so weird, I wouldn't do that" to "Hey, let's call a Uber" in a pretty short amount of time.

 

If I can suddenly order my asthma meds online and get a better price, I'll do that for sure. That's a lower psychological barrier, IMO, than sleeping in a stranger's guest bedroom.

 

--

But we are looking at this from a different perspective:

- From the Amazon bulls perspective, these are large markets with attractive economics. The fact that it might take 10 years or more to break into these markets, doesn't diminish the opportunity.

- For someone who is buying CVS at 11x FCF, it makes a big difference how long it takes for Amazon to enter.

 

But I also don't see why a majority of common, routine drugs couldn't be sold at lower prices online by a company that hires a bunch of pharmacists.

 

Costco already offers low prices online. It only has 0.6% market share (and that includes the warehouse stores). Walmart also offers cheaper drugs. It only has 5% market share (including retail stores). I'm not saying Amazon can't figure this out eventually. I'm just saying it is much harder in practice than it is in theory. Amazon has been looking at entering this category since the 90s. The reason they haven't entered yet is because it is hard.

 

But again, this isn't specific to drugs. It also applies to grocery, industrial distributors, auto parts, and other Amazon victims. It just happens that the drugstores/PBMs are a category that offer attractive valuations combined with the least advanced "amazon effect". Fastenal (25x) and ORLY (18x) also have Amazon risk. The only reason why CVS/WBA seem to be selling at such a discount is because of the availability bias. There is a lot of discussion about Amazon and prescription drugs right now. Once they actually enter the category, the buzz will die down and CVS/WBA will go back to trading on fundamentals.

 

Do you think that Amazon is the only reason for the depressed valuations? The whole US healthcare/pharma sector has been going through a tough period lately... Personally, I'm not looking at those as investments, so I don't have much to add on that side. I never said the market was pricing those things rationally or not or that Amazon would crush everyone. I just think this is indeed a large, attractive market for Amazon to go in if they can figure out a model that works.

 

Your last point is what I harp on the most, more retail stores are closing this year than at the height of the GFC in fact I think 2017 set an all-time record in October, citing Amazon as the reason for retailers revenue dropping, bankruptcy, etc is just lazy. Our retail square foot per person is absolutely ridiculous when compared to other countries.

[KCLarkin]

Do you think that Amazon is the only reason for the depressed valuations? The whole US healthcare/pharma sector has been going through a tough period lately...

 

Healthcare is the second best sector YTD (after tech). CVS valuation was already low. But WBA didn't really crack until the Amazon rumours heated up. But again, my point isn't to argue for a specific category. Just trying to point out the reality that things take much longer than expected (even for Amazon).

 

 

[DTEJD1997]

Hey all:

 

WMT has just reported better than expected sales & earnings.  One of the factors was online sales.  I haven't fully read it yet, but an idea popped into my head...

 

Could AMZN be vulnerable to competition (broadline competitor) that makes money selling things online?  What if WMT ramps up their online sales.  Then, WMT makes money on the online sales as they have better scale/logistics/management/secret sauce?

 

Then investors think "WMT (or other competitor) is making money from online sales, why can't AMZN do that (or do it better)?  Why should WMT trade for a 21 P/E and AMZN trade for a 210 P/E?

 

What I am getting at is AMZN vulnerable to a competitor that is able to make money (or better money) from online sales?  If that does indeed happen, will AMZN's valuation premium vanish/contract?

[Liberty]

Do you think that Amazon is the only reason for the depressed valuations? The whole US healthcare/pharma sector has been going through a tough period lately...

 

Healthcare is the second best sector YTD (after tech). CVS valuation was already low. But WBA didn't really crack until the Amazon rumours heated up. But again, my point isn't to argue for a specific category. Just trying to point out the reality that things take much longer than expected (even for Amazon).

 

I was looking at the past few years. YTD is a bit arbitrary. Looks like CVS peaked in 2015, same for WBA. And same for a lot of pharmas like AGN, PFE (2016, but mostly flat for years), NVS, GSK (2014), etc.

 

I agree things take a while. My point was just that comparing to fresh food might not be the best comparison.

[Liberty]

Hey all:

 

WMT has just reported better than expected sales & earnings.  One of the factors was online sales.  I haven't fully read it yet, but an idea popped into my head...

 

Could AMZN be vulnerable to competition (broadline competitor) that makes money selling things online?  What if WMT ramps up their online sales.  Then, WMT makes money on the online sales as they have better scale/logistics/management/secret sauce?

 

Then investors think "WMT (or other competitor) is making money from online sales, why can't AMZN do that (or do it better)?  Why should WMT trade for a 21 P/E and AMZN trade for a 210 P/E?

 

What I am getting at is AMZN vulnerable to a competitor that is able to make money (or better money) from online sales?  If that does indeed happen, will AMZN's valuation premium vanish/contract?

 

What makes you think that Amazon doesn't make money selling things as opposed to making money but then re-investing it all elsewhere so as to show no profit but optimize for faster growth? As I said elsewhere in this thread, what do you think would happen to profit margins if Amazon targeted 10 or 15% growth (still multiples of WMT growth) rather than 25-30%?

[Guest Cameron]

Hey all:

 

WMT has just reported better than expected sales & earnings.  One of the factors was online sales.  I haven't fully read it yet, but an idea popped into my head...

 

Could AMZN be vulnerable to competition (broadline competitor) that makes money selling things online?  What if WMT ramps up their online sales.  Then, WMT makes money on the online sales as they have better scale/logistics/management/secret sauce?

 

Then investors think "WMT (or other competitor) is making money from online sales, why can't AMZN do that (or do it better)?  Why should WMT trade for a 21 P/E and AMZN trade for a 210 P/E?

 

What I am getting at is AMZN vulnerable to a competitor that is able to make money (or better money) from online sales?  If that does indeed happen, will AMZN's valuation premium vanish/contract?

 

What makes you think that Amazon doesn't make money selling things as opposed to making money but then re-investing it all elsewhere so as to show no profit but optimize for faster growth? As I said elsewhere in this thread, what do you think would happen to profit margins if Amazon targeted 10 or 15% growth (still multiples of WMT growth) rather than 25-30%?

 

What makes me think that is the balance sheet which Amazon doesn't want people to look at. Amazon issues debt and equity, it doesn't make money. $17 billion of its shareholder equity comes from additional paid in capital. Without this effect book value for Amazon is $4 a share the exact same number it was in 2011, so it's grown B/V a grand total of 0% over 6 years. Anyone who calls this the new Walmart or Sears never read the annual reports of them when they were growing just as fast as Amazon. Every dollar they make goes to paying debt not investing.

[Liberty]

https://www.cnbc.com/2017/11/16/john-malone-says-amazon-is-a-death-star-moving-in-striking-range-of-every-industry-on-the-planet.html

 

They used to call Malone Darth Vader during the 1990s… so does that line mean he really likes Amazon?  ;)

[Liberty]

What makes me think that is the balance sheet which Amazon doesn't want people to look at. Amazon issues debt and equity, it doesn't make money. $17 billion of its shareholder equity comes from additional paid in capital. Without this effect book value for Amazon is $4 a share the exact same number it was in 2011, so it's grown B/V a grand total of 0% over 6 years. Anyone who calls this the new Walmart or Sears never read the annual reports of them when they were growing just as fast as Amazon. Every dollar they make goes to paying debt not investing.

 

Are you both saying that the stock is tremendously, tremendously overvalued, but that it's a bad idea for them to issue so much stock-based compensation to employees?

[Guest Cameron]

What makes me think that is the balance sheet which Amazon doesn't want people to look at. Amazon issues debt and equity, it doesn't make money. $17 billion of its shareholder equity comes from additional paid in capital. Without this effect book value for Amazon is $4 a share the exact same number it was in 2011, so it's grown B/V a grand total of 0% over 6 years. Anyone who calls this the new Walmart or Sears never read the annual reports of them when they were growing just as fast as Amazon. Every dollar they make goes to paying debt not investing.

 

Are you both saying that the stock is tremendously, tremendously overvalued, but that it's a bad idea for them to issue so much stock-based compensation to employees?

 

No, its not worth even saying the stock is overvalued, I'm just talking about the capital structure.

 

They should keep issuing SBC this is completely on the shareholders at this point the only part of the SBC that I find disingenuous is when they break out AWS they don't show the SBC attributed to AWS, Amazon has laid it all out in their numbers for people to read if shareholders allow it to happen then go for it.

[KCLarkin]

YTD is a bit arbitrary.

 

It's not arbitrary. This is the period when the Amazon rumours started. So, the relative underperformance for WBA versus Healthcare sector is largely attributable to Amazon. Earnings were up 11%, so it's not like WBA is struggling. WBA peaked at 25x in 2015, so it needed to burn off some overvaluation. But it was in consolidation from the end of 2015 until Sept 2017 (which is when the Amazon rumors started getting hot). CVS is more complicated.

[Liberty]

YTD is a bit arbitrary.

 

It's not arbitrary. This is the period when the Amazon rumours started. So, the relative underperformance for WBA versus Healthcare sector is largely attributable to Amazon. Earnings were up 11%, so it's not like WBA is struggling. WBA peaked at 25x in 2015, so it needed to burn off some overvaluation. But it was in consolidation from the end of 2015 until Sept 2017 (which is when the Amazon rumors started getting hot). CVS is more complicated.

 

Wow, we're really not good at communicating with one another for some reason.

 

I said that healthcare/pharma has been going through a tough period, so lower valuations might not be entirely because of Amazon. You said sector was second best performer YTD (seemingly contradicting what I said about a "tough period"), so I explained that I was zoomed out a bit more.

 

Even if there's divergence between these and the rest of the second since Amazon rumors started, explaining part of the lower valuation, I'm saying that another part of that valuation might come from a larger trend that started out before YTD. That's all.

[KCLarkin]

I'm saying that another part of that valuation might come from a larger trend that started out before YTD. That's all.

 

Sure. But that's not really what I'm looking for here. I've discussed other factors weighing on CVS in the CVS thread.

 

I'm specifically looking for the "Amazon discount", because I'm confident it will unwind. So if there is a 30% relative underperformance for WBA versus healthcare YTD, I'm pretty confident the Amazon discount for WBA is 15-30%.

 

Anyway, the reason why our communication isn't working is because we are looking for different things. I am looking for bargain opportunities in industries that Amazon is rumoured to disrupt. You are looking for opportunities for Amazon to enter new categories.

 

I'm picking up pennies in front of a steamroller. You are driving the steamroller.

[rkbabang]

John Malone says Amazon is a 'Death Star' moving in 'striking range of every industry on the planet'

 

""I think Jeff [bezos] is gonna be the most disruptive. As [his] Death Star moves into striking range of every industry on the planet."

 

He explained that Amazon's business dominance is growing stronger. Malone said any company that sells products to consumers is at risk of being crushed by the e-commerce giant.

 

"If you're in the B2C business, if you're selling anything to any consumer anywhere on the planet, you gotta believe that Amazon is gonna have a look at that opportunity to commoditize you to use scale to serve the public," he said. Bezos is "reducing cost to the consumer and providing great convenience ... You just got to take your hat off and envy what he has built.""

[Liberty]

I'm picking up pennies in front of a steamroller. You are driving the steamroller.

 

That's good writing right there. I hope it's also correct, but just the imagery is worth it.

[Liberty]

Hour-long video of Jeff Bezos with his brother Mark:

 

[saltybit]

http://www.cringely.com/2017/11/17/15468/

 

Makes a strong bull case for Amazon continuing to dominating the public cloud business.

[whiskybravo]

An early look at our generation's foremost outsider CEO:

 

https://www.youtube.com/watch?v=fjjUOemW-_Q

 

[DTEJD1997]

Hey all:

 

Yet another story of poor conditions inside an AMZN fulfillment warehouse:

 

https://www.thesun.co.uk/news/5004230/amazon-warehouse-working-conditions/

 

This is something like the 20th article about how poor conditions are in AMZN warehouses.  Yet local governments are tripping over themselves to roll out the welcome matte for AMZN. 

 

Are conditions in the job market STILL that bad that there are thousands and thousands of people willing to make the sacrifice and work in AMZN warehouses?

[LongTermView]

Hour-long video of Jeff Bezos with his brother Mark:

 

 

It's good so far.

 

Jeff's wife: "I would much rather have a kid with 9 fingers than a resourceless kid."

[Liberty]

60 Minute profile from 1999 about Bezos and Amazon:

 

https://www.youtube.com/watch?v=6cTjhzSgdwE

[Liberty]

https://www.cnbc.com/2017/11/30/amazon-holding-exploratory-talks-with-generic-drug-makers.html

[Liberty]

https://www.ben-evans.com/benedictevans/2017/12/12/the-amazon-machine

[DTEJD1997]

Hey all:

 

Yet another story about AMZN and how they have nice, good, well paying jobs!

 

http://www.mirror.co.uk/news/uk-news/amazon-drivers-forced-deliver-200-11668823

 

This report is not unique to the UK, there are similar stories coming out of the USA.