AMZN - Amazon.com Inc.

[rkbabang]

Interesting article.  I've never heard of Deliverr before and didn't realize that Walmart used them to offer two day delivery for a lot of its own items as well as 3rd party items, and that ebay sellers use them as well. I guess I'm not in the habit of going to walmart.com for anything and I don't use ebay very often anymore either.

 

Amazon will soon lose the biggest reason to pay for Prime

 

[Liberty]

Q4:

 

https://press.aboutamazon.com/news-releases/news-release-details/amazoncom-announces-fourth-quarter-sales-20-724-billion

 

Fourth Quarter 2018

 

Net sales increased 20% to $72.4 billion in the fourth quarter, compared with $60.5 billion in fourth quarter 2017. Excluding the $801 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 21% compared with fourth quarter 2017.

 

Operating income increased to $3.8 billion in the fourth quarter, compared with operating income of $2.1 billion in fourth quarter 2017.

 

Net income increased to $3.0 billion in the fourth quarter, or $6.04 per diluted share, compared with net income of $1.9 billion, or $3.75 per diluted share, in fourth quarter 2017. The fourth quarter 2017 included a provisional tax benefit for the impact of the U.S. Tax Cuts and Jobs Act of 2017 of approximately $789 million.

[Spekulatius]

First Quarter 2019 Guidance

 

Net sales are expected to be between $56 billion and $60 billion, or to grow between 10% and 18% compared with first quarter 2018. This guidance anticipates an unfavorable impact of approximately 210 basis points from foreign exchange rates.

 

Hmm, what is a 15% grower worth, 30x earnings maybe, or 20x EBITDA at most?

[ZenaidaMacroura]

Does anyone recall whether there was a overall reason why amazon growth slowed in 2014? 

[Spekulatius]

Does anyone recall whether there was a overall reason why amazon growth slowed in 2014?

 

The revenues # are driven by their e-commerce business. It was mostly international growth slowing down, while NAnstill grew around 25% YOY. AWS wasn’t as big of anrevenue driver back than, due to smaller size.

 

Revenue growth in NA has to slowed down, due to the Whole Foods acquistition adding ~$16B in 2017. I doubt that this business by itself grows much, but I do think it’s synergistic.

 

On another note, AMZN made close to $40 in FCF/share in 2018, so it trades around a 2.5% FCF yield. It’s not cheap by any means, but not outrageously valued either. Going forward, they probably really need to dominate large countries in terms of e-commerce to keep growing faster than ~15%.

[dwy000]

If you include finance lease payments in the cash flow (since they use so much finance lease instead of purchase capex), it is $16.8 per share so trading closer to 100x cash flow.

 

Share count keeps creeping up 1-2% per year.  That's not a lot as a headline but it's over $5bn of market cap issued each year.  Half of the cash flow.

 

[Spekulatius]

Does anyone recall whether there was a overall reason why amazon growth slowed in 2014?

 

The revenues # are driven by their e-commerce business. It was mostly international growth slowing down, while NA still grew around 25% YOY. AWS wasn’t as big of a revenue driver back than, due to smaller size.

 

Revenue growth in NA has to slowed down, due to the Whole Foods acquistition adding ~$16B in 2017. I doubt that this business by itself grows much, but I do think it’s synergistic.

 

On another note, AMZN made close to $40 in FCF/share in 2018, so it trades around a 2.5% FCF yield. It’s not cheap by any means, but not outrageously valued either. Going forward, they probably really need to dominate large countries in terms of e-commerce to keep growing faster than ~15%.

[walkie518]

Does anyone recall whether there was a overall reason why amazon growth slowed in 2014?

 

The revenues # are driven by their e-commerce business. It was mostly international growth slowing down, while NA still grew around 25% YOY. AWS wasn’t as big of a revenue driver back than, due to smaller size.

 

Revenue growth in NA has to slowed down, due to the Whole Foods acquistition adding ~$16B in 2017. I doubt that this business by itself grows much, but I do think it’s synergistic.

 

On another note, AMZN made close to $40 in FCF/share in 2018, so it trades around a 2.5% FCF yield. It’s not cheap by any means, but not outrageously valued either. Going forward, they probably really need to dominate large countries in terms of e-commerce to keep growing faster than ~15%.

I believe that was a result of int'l sales growth at a slower pace...

 

[peridotcapital]

 

On another note, AMZN made close to $40 in FCF/share in 2018, so it trades around a 2.5% FCF yield. It’s not cheap by any means, but not outrageously valued either. Going forward, they probably really need to dominate large countries in terms of e-commerce to keep growing faster than ~15%.

 

The first paragraph of the Q4 earnings release spells out their true FCF:

 

"Operating cash flow increased 67% to $30.7 billion for the trailing twelve months, compared with $18.4 billion for the trailing twelve months ended December 31, 2017. Free cash flow increased to $19.4 billion for the trailing twelve months, compared with $8.3 billion for the trailing twelve months ended December 31, 2017. Free cash flow less lease principal repayments increased to $11.6 billion for the trailing twelve months, compared with $3.3 billion for the trailing twelve months ended December 31, 2017. Free cash flow less finance lease principal repayments and assets acquired under capital leases increased to an inflow of $8.4 billion for the trailing twelve months, compared with an outflow of $1.5 billion for the trailing twelve months ended December 31, 2017."

 

If they paid their employees in all cash, FCF in 2018 would have been about $3 billion, or $6 per share. So the true FCF yield is more like 0.4%, not 2.5%.

 

Sell side analysts like to justify sky high price targets by quoting CFO less capex, right from the cash flow statement, but also ignore the leases. Even the company started to put the real numbers in the first paragraph of each press release, but many still ignore it.

 

I think EBITDA is probably the preferred metric, instead of FCF, and it trades at about 30x trailing right now. Hard to argue that is a good price for future returns considering that revenue growth is only going to slow from here.

[Broeb22]

 

 

I think EBITDA is probably the preferred metric, instead of FCF, and it trades at about 30x trailing right now. Hard to argue that is a good price for future returns considering that revenue growth is only going to slow from here.

 

Kinda depends how fast EBITDA is growing, doesn't it? With margins at NA Retail increasing rapidly, AWS expanding margins even as it grows 40%+ per year, and the Advertising business doubling (at very high incremental margins), you can make the case that EBITDA doubles in <2 years, and doubles again in another 3-4 years. So if EBITDA grows 4x in 5-6 years, and the multiple gets cut in half, you still have a double. So, still 12-15% annual returns even in that case.

 

Which is still pretty good for the one company that most people agree has the best competitive position in multiple businesses, and is investing in creating others such as logistics.

[Shooter MacGavin]

 

On another note, AMZN made close to $40 in FCF/share in 2018, so it trades around a 2.5% FCF yield. It’s not cheap by any means, but not outrageously valued either. Going forward, they probably really need to dominate large countries in terms of e-commerce to keep growing faster than ~15%.

 

The first paragraph of the Q4 earnings release spells out their true FCF:

 

"Operating cash flow increased 67% to $30.7 billion for the trailing twelve months, compared with $18.4 billion for the trailing twelve months ended December 31, 2017. Free cash flow increased to $19.4 billion for the trailing twelve months, compared with $8.3 billion for the trailing twelve months ended December 31, 2017. Free cash flow less lease principal repayments increased to $11.6 billion for the trailing twelve months, compared with $3.3 billion for the trailing twelve months ended December 31, 2017. Free cash flow less finance lease principal repayments and assets acquired under capital leases increased to an inflow of $8.4 billion for the trailing twelve months, compared with an outflow of $1.5 billion for the trailing twelve months ended December 31, 2017."

 

If they paid their employees in all cash, FCF in 2018 would have been about $3 billion, or $6 per share. So the true FCF yield is more like 0.4%, not 2.5%.

 

Sell side analysts like to justify sky high price targets by quoting CFO less capex, right from the cash flow statement, but also ignore the leases. Even the company started to put the real numbers in the first paragraph of each press release, but many still ignore it.

 

I think EBITDA is probably the preferred metric, instead of FCF, and it trades at about 30x trailing right now. Hard to argue that is a good price for future returns considering that revenue growth is only going to slow from here.

 

Amazon just does a very poor job of trying to explain what their actual economic/owners earnings is if they stop investing.  EBITDA isn't a great proxy because there's so much run rate capex.  CFO less principal lease payments isn't ideal. That assumes that principal for debt gets paid into perpetuity.  Assets acquired under capital leases should probably be amortized because otherwise you're making the assumption that there is only 1 year of useful life. 

[peridotcapital]

 

Kinda depends how fast EBITDA is growing, doesn't it? With margins at NA Retail increasing rapidly, AWS expanding margins even as it grows 40%+ per year, and the Advertising business doubling (at very high incremental margins), you can make the case that EBITDA doubles in <2 years, and doubles again in another 3-4 years. So if EBITDA grows 4x in 5-6 years, and the multiple gets cut in half, you still have a double. So, still 12-15% annual returns even in that case.

 

Which is still pretty good for the one company that most people agree has the best competitive position in multiple businesses, and is investing in creating others such as logistics.

 

If they can grow EBITDA 25-30% annually over the next 6 years, in the face of what is likely to be clear and material revenue deceleration given their size, that would be very impressive. Not a bet I would have high conviction on, but they have proven plenty of folks wrong so far.

[Broeb22]

Care to quantify what "clear and material" looks like, or do you prefer to hide behind ominous words without supporting evidence?

[peridotcapital]

Care to quantify what "clear and material" looks like, or do you prefer to hide behind ominous words without supporting evidence?

 

I don't think decelerating revenue for a growth company is "ominous." :)  I would say 10% organic revenue growth will be quite a challenge on a $300B per year business. If revenue grows slows to say, 8% annually, can they really grow EBITDA 25-30% annually? If they can, I agree that the stock should produce double-digit annual returns. The biggest risk, in my view, is that we see real multiple compression once revenue growth slows to single digits. Even at 20x EBITDA it would trade at a premium, and deservedly so.

[dwy000]

Care to quantify what "clear and material" looks like, or do you prefer to hide behind ominous words without supporting evidence?

 

I don't think decelerating revenue for a growth company is "ominous." :)  I would say 10% organic revenue growth will be quite a challenge on a $300B per year business. If revenue grows slows to say, 8% annually, can they really grow EBITDA 25-30% annually? If they can, I agree that the stock should produce double-digit annual returns. The biggest risk, in my view, is that we see real multiple compression once revenue growth slows to single digits. Even at 20x EBITDA it would trade at a premium, and deservedly so.

 

Growing EBITDA faster than revenues means either raising prices or reducing costs.  Not sure how much you can take down the run-the-business costs (COGS, shipping, mgmt., overhead, etc) which means starting to eliminate many of the "growth" expenses and investment (like the billions spent on Prime Video).  Either way, it becomes a question of whether you can continue to get above average revenue growth if you raise prices or eliminate perks.

[Liberty]

Growing EBITDA faster than revenues means either raising prices or reducing costs.  Not sure how much you can take down the run-the-business costs (COGS, shipping, mgmt., overhead, etc) which means starting to eliminate many of the "growth" expenses and investment (like the billions spent on Prime Video).  Either way, it becomes a question of whether you can continue to get above average revenue growth if you raise prices or eliminate perks.

 

As AWS becomes a bigger slice of the pie, that'll drive EBITDA up faster than revenue growth because it has a much higher margin than retail.

 

Same for advertising.

 

There can also be tipping points where international operations mature into profitable businesses that contribute positively rather than negatively to the aggregate margin on the retail side and helps EBITDA grow faster than revenues.

 

There are also infrastructure investments that you don't have to keep making over and over. Once you have fulfillment centers close enough to all population centers to offer 1-day shipping, you have to keep expanding them at a much lower pace than the investment that was required for going from no-1-day capability to 1-day capability.

[Liberty]

Bezos wrote this:

 

https://medium.com/@jeffreypbezos/no-thank-you-mr-pecker-146e3922310f

[Guest cherzeca]

does Whole Foods sell national enquirer at the checkout? 

[Foreign Tuffett]

does Whole Foods sell national enquirer at the checkout?

 

Go there tomorrow and ask for the "Bezos dick pic issue"

[Gregmal]

Seems like Dr. Evil can dish it out, but he can't take it...

[Pauly]

Seems like Dr. Evil can dish it out, but he can't take it...

 

What do you mean he can’t take it? He’s taking it great as far as I can see. He saw the problem, took the hit on the chin, and may very well bury his adversary in the business graveyard. I’d be disappointed if he’d gone along with this two bit extortion. He was smart enough to see that his opponent was ‘Pecker’ from the national enquirer and not take the L.

 

Side note, what kind of hourly rate would you charge to take on the mantle of “Lawyer for the National Enquirer”? Talk about laying down with dogs.

[wachtwoord]

If all Bezos wrote is true, you can say a lot about the guy but he certainly has balls. Of course he's in the position to show them (financially and influence-wise) and surviving but still.

[Cardboard]

Lol!

 

I would love to be Mackenzie's lawyer. Poor girl, she has been tossed out with the kids while her ex is sending pics of his dick and who knows what else to another cheater in her own neighborhood and now everyone knows... Isn't she ashame of such behavior and to have been with this guy for so long? You bet she is and mad.

 

I would really play on her sentiments to make her demand her half.

 

 

[dwy000]

Seems like Dr. Evil can dish it out, but he can't take it...

 

What do you mean he can’t take it? He’s taking it great as far as I can see. He saw the problem, took the hit on the chin, and may very well bury his adversary in the business graveyard. I’d be disappointed if he’d gone along with this two bit extortion. He was smart enough to see that his opponent was ‘Pecker’ from the national enquirer and not take the L.

 

Side note, what kind of hourly rate would you charge to take on the mantle of “Lawyer for the National Enquirer”? Talk about laying down with dogs.

 

Huh.  I was assuming Dr. Evil in this scenario was Pecker.

 

Love the Huff Post headline "Bezos exposes Pecker". You cant make this stuff up.

[Dalal.Holdings]

Lol!

 

I would love to be Mackenzie's lawyer. Poor girl, she has been tossed out with the kids while her ex is sending pics of his dick and who knows what else to another cheater in her own neighborhood and now everyone knows... Isn't she ashame of such behavior and to have been with this guy for so long? You bet she is and mad.

 

I would really play on her sentiments to make her demand her half.

 

You think that's bad, imagine how ashamed Melania feels...her hubby had his buddy at The Enquirer kill his scandal and it still came out (thx to presidential ambitions).