AMZN - Amazon.com Inc.

[Guest valueInv]

http://techcrunch.com/2013/10/21/german-antitrust-watchdog-investigates-amazons-3rd-party-pricing-as-e-commerce-giant-touts-new-3rd-party-holiday-sales-channels/

 

They're also running into trouble in France.

[Guest valueInv]

This shows you that if you have a good narrative and say very little about reality, investors will assume the best:

 

http://venturebeat.com/2013/10/24/red-is-the-new-green-for-amazon-shareholders-despite-these-relevant-unanswered-questions/

 

Reminds me of mushrooms.

[muscleman]

This shows you that if you have a good narrative and say very little about reality, investors will assume the best:

 

http://venturebeat.com/2013/10/24/red-is-the-new-green-for-amazon-shareholders-despite-these-relevant-unanswered-questions/

 

Reminds me of mushrooms.

 

I would recommend you read George Soros' theory of reflexivity. The fact that AMZN is extremely over priced enables them to issue stocks to finance every thing. Their pay is really good compared to MSFT and Oracle, so they can always attract top talents. The more they grow, the more overpriced the stocks are, and the easier for them to issue stocks to finance everything in order to kill competitors and gain moat. That is exactly what I would do if I were the CEO.

I don't see this self reinforcing loop coming to an end anytime soon yet.

As a value investor, I agree that they are overpriced and I am not interested in buying at current levels, but I am currently considering to join their company and get a good chunk of stock awards. If my prediction is right, these overpriced stocks will become even more overpriced in 3 years. If they don't, I am still doing fine because the majority chunk of these stocks will be vested to me in the 3rd year, and I will get very good cash bonus for 1st and 2nd year. :)

[Guest valueInv]

This shows you that if you have a good narrative and say very little about reality, investors will assume the best:

 

http://venturebeat.com/2013/10/24/red-is-the-new-green-for-amazon-shareholders-despite-these-relevant-unanswered-questions/

 

Reminds me of mushrooms.

 

I would recommend you read George Soros' theory of reflexivity. The fact that AMZN is extremely over priced enables them to issue stocks to finance every thing. Their pay is really good compared to MSFT and Oracle, so they can always attract top talents. The more they grow, the more overpriced the stocks are, and the easier for them to issue stocks to finance everything in order to kill competitors and gain moat. That is exactly what I would do if I were the CEO.

I don't see this self reinforcing loop coming to an end anytime soon yet.

As a value investor, I agree that they are overpriced and I am not interested in buying at current levels, but I am currently considering to join their company and get a good chunk of stock awards. If my prediction is right, these overpriced stocks will become even more overpriced in 3 years. If they don't, I am still doing fine because the majority chunk of these stocks will be vested to me in the 3rd year, and I will get very good cash bonus for 1st and 2nd year. :)

 

Are they issuing more stock? I haven't seen secondary offerings.

[ItsAValueTrap]

The fact that AMZN is extremely over priced enables them to issue stocks to finance every thing.

Except they issued stock during the tech bubble.  I believe Buffett bought Amazon debt at one point in time.

[compoundinglife]

The fact that AMZN is extremely over priced enables them to issue stocks to finance every thing.

Except they issued stock during the tech bubble.  I believe Buffett bought Amazon debt at one point in time.

 

Yes he did when their debt was HY. This might have been already posted on the thread: http://articles.chicagotribune.com/2003-04-12/business/0304120174_1_junk-bonds-warren-buffett-berkshire-hathaway

[muscleman]

This shows you that if you have a good narrative and say very little about reality, investors will assume the best:

 

http://venturebeat.com/2013/10/24/red-is-the-new-green-for-amazon-shareholders-despite-these-relevant-unanswered-questions/

 

Reminds me of mushrooms.

 

I would recommend you read George Soros' theory of reflexivity. The fact that AMZN is extremely over priced enables them to issue stocks to finance every thing. Their pay is really good compared to MSFT and Oracle, so they can always attract top talents. The more they grow, the more overpriced the stocks are, and the easier for them to issue stocks to finance everything in order to kill competitors and gain moat. That is exactly what I would do if I were the CEO.

I don't see this self reinforcing loop coming to an end anytime soon yet.

As a value investor, I agree that they are overpriced and I am not interested in buying at current levels, but I am currently considering to join their company and get a good chunk of stock awards. If my prediction is right, these overpriced stocks will become even more overpriced in 3 years. If they don't, I am still doing fine because the majority chunk of these stocks will be vested to me in the 3rd year, and I will get very good cash bonus for 1st and 2nd year. :)

 

Are they issuing more stock? I haven't seen secondary offerings.

 

They give new hires stock awards, and also I heard that they give employee annual bonus only in stocks. I know that a lot of companies have employee stock purchase plan, so I think AMZN probably has one as well.

[Grenville]

In the Q3 2013 release, Bezos mentions the deployment of 1,382 Kiva robots to 3 fulfillment centers. They haven't referred to the Kiva robots before from what I can remember. They also raised the min on free shipping to $35.

 

 

[bookie71]

FWIW:

My last order to Amazon wasn't filed and shipped until almost a week after I placed the order.

In the past "in stock" items were always shipped, at the latest, the next day.

It is a good thing I wasn't in a hurry, but it might make me think about ordering from somewhere else next time.

CB

P.S.  Maybe the robots were sick  ;D

 

[link01]

 

 

I would recommend you read George Soros' theory of reflexivity. The fact that AMZN is extremely over priced enables them to issue stocks to finance every thing. Their pay is really good compared to MSFT and Oracle, so they can always attract top talents. The more they grow, the more overpriced the stocks are, and the easier for them to issue stocks to finance everything in order to kill competitors and gain moat. That is exactly what I would do if I were the CEO.

I don't see this self reinforcing loop coming to an end anytime soon yet.

 

sounds about right in theory. and many hi-fliers do issue stock to finance acquisitions. but amzn is not one of them. diluted shares were 419m in 2003 and were 453m at 2012 yr end.

 

 

[gfp]

In the Q3 2013 release, Bezos mentions the deployment of 1,382 Kiva robots to 3 fulfillment centers. They haven't referred to the Kiva robots before from what I can remember. They also raised the min on free shipping to $35.

 

Amazon owns Kiva Systems, the robot company.  They bought them in 2012 for $775 million cash, so it's good that they are actually doing to deploy them.  They also bought Quidsi (Diapers.com, Soap.com, etc), which was a big early user of Kiva's order picking robots.

[Grenville]

In the Q3 2013 release, Bezos mentions the deployment of 1,382 Kiva robots to 3 fulfillment centers. They haven't referred to the Kiva robots before from what I can remember. They also raised the min on free shipping to $35.

 

Amazon owns Kiva Systems, the robot company.  They bought them in 2012 for $775 million cash, so it's good that they are actually doing to deploy them.  They also bought Quidsi (Diapers.com, Soap.com, etc), which was a big early user of Kiva's order picking robots.

 

I am aware. It is the first time they have mentioned deployment. Amazon is very stingy with specific numbers or details in both their releases and the conference calls. I find it interesting that they are providing such granular detail on robot deployment.

[DTEJD1997]

Wow:

 

A multi billion mega cap stock is STILL losing money and the stock rockets forward 10%+.

 

So my question to all the bulls is:

 

"At what price is AMZN too much"?

 

When do they plan on actually making money?  I am beginning to suspect that they might not even know.

 

What happens if they keep growing sales for some time...then they decide it is time to actually make money...but then they lose customers/growth?

[rkbabang]

Wow:

 

A multi billion mega cap stock is STILL losing money and the stock rockets forward 10%+.

 

So my question to all the bulls is:

 

"At what price is AMZN too much"?

 

When do they plan on actually making money?  I am beginning to suspect that they might not even know.

 

What happens if they keep growing sales for some time...then they decide it is time to actually make money...but then they lose customers/growth?

 

 

They don't need to ever make money.  They have a new business model that has never been seen before.  You are using an antiquated theory to value them.  They will keep increasing revenue and their stock will continue to go up, whether or not they ever actually make a profit, it doesn't matter.

 

 

:)  That seems to be the theory anyway.  I'm not a shareholder, but I am a happy customer.

 

 

[DTEJD1997]

They don't need to ever make money.  They have a new business model that has never been seen before.  You are using an antiquated theory to value them.  They will keep increasing revenue and their stock will continue to go up, whether or not they ever actually make a profit, it doesn't matter.

 

 

:)  That seems to be the theory anyway.  I'm not a shareholder, but I am a happy customer.

 

I will admit, I've purchased things from AMZN before, and they did a pretty good job.  So do plenty of other sellers though...

 

I've just got this nagging feeling that I've seen this before somewhere....

 

Oh I don't know....maybe the internet back in 1998, 1999?

 

I think those companies had a new business model back then!    ;)

[Kraven]

They don't need to ever make money.  They have a new business model that has never been seen before.  You are using an antiquated theory to value them.  They will keep increasing revenue and their stock will continue to go up, whether or not they ever actually make a profit, it doesn't matter.

 

 

:)  That seems to be the theory anyway.  I'm not a shareholder, but I am a happy customer.

 

I will admit, I've purchased things from AMZN before, and they did a pretty good job.  So do plenty of other sellers though...

 

I've just got this nagging feeling that I've seen this before somewhere....

 

Oh I don't know....maybe the internet back in 1998, 1999?

 

I think those companies had a new business model back then!    ;)

 

They lose money, but I'm pretty sure they make it up on volume.

[JAllen]

I'd like to ask a series of questions about the company, if I may.  These are meant to spur discussion and cause more people to thoroughly understand AMZN's financials and management intent instead of focusing solely on the fact that the company is currently generating slightly negative GAAP income.

 

Has anyone ever considered the possibility that they may in fact be making money but it doesn't show up on their income statement?  How would you evaluate this?  Why would a company choose to minimize its GAAP income?  How does the company measure profitability?  Is it possible that the company doesn't focus on GAAP profitability but in fact focuses on other profitability measures?  What did Jeff Bezos say in his 1997 letter to shareholders about what financial metrics he would focus on and how the company would make financial decisions?

 

Is the company doing anything that intentionally reduces both GAAP income and free cash flow? 

 

Has the company much more inefficient over the last three years (since 2009 when it generated a ~12% free cash flow margin)?  Are operating expenses permanently higher as a percentage of revenues?  How have gross margins changed since then as well.

 

Could there be any incentives to intentionally minimize income at the company?  Are there other examples of very successful CEOs intentionally minimizing income?  How did that work out for them and what were they focused on?

 

 

Probably the most important question I might ask myself is "what does the market see that I don't?"  How am I right and everyone else is wrong?

 

 

And to answer the question about  "what price would be too high right now?", that's an excellent question.  I think $500 or so would be too high for right now, but I don't know if I would sell.  I would probably sell some at that price.  If it reaches that price in the next year I will seriously consider selling then, perhaps.

 

 

Was there ever too high of a price for Berkshire Hathaway prior to the 2000s?  Or is the market just totally wrong about AMZN, has been for 3+ years but never was for Berkshire Hathaway?

 

Does anyone know how much in the way of net tangible assets AMZN shareholders have invested in the company?  What is operating cash flow divided by NTA?

[Guest valueInv]

They don't need to ever make money.  They have a new business model that has never been seen before.  You are using an antiquated theory to value them.  They will keep increasing revenue and their stock will continue to go up, whether or not they ever actually make a profit, it doesn't matter.

 

 

:)  That seems to be the theory anyway.  I'm not a shareholder, but I am a happy customer.

 

I will admit, I've purchased things from AMZN before, and they did a pretty good job.  So do plenty of other sellers though...

 

I've just got this nagging feeling that I've seen this before somewhere....

 

Oh I don't know....maybe the internet back in 1998, 1999?

 

I think those companies had a new business model back then!    ;)

 

They lose money, but I'm pretty sure they make it up on volume.

 

;D ;D

[kevin4u2]

I'd like to ask a series of questions about the company, if I may.  These are meant to spur discussion and cause more people to thoroughly understand AMZN's financials and management intent instead of focusing solely on the fact that the company is currently generating slightly negative GAAP income.

 

Has anyone ever considered the possibility that they may in fact be making money but it doesn't show up on their income statement?  How would you evaluate this?  Why would a company choose to minimize its GAAP income?  How does the company measure profitability?  Is it possible that the company doesn't focus on GAAP profitability but in fact focuses on other profitability measures?  What did Jeff Bezos say in his 1997 letter to shareholders about what financial metrics he would focus on and how the company would make financial decisions?

 

Is the company doing anything that intentionally reduces both GAAP income and free cash flow? 

 

Has the company much more inefficient over the last three years (since 2009 when it generated a ~12% free cash flow margin)?  Are operating expenses permanently higher as a percentage of revenues?  How have gross margins changed since then as well.

 

Could there be any incentives to intentionally minimize income at the company?  Are there other examples of very successful CEOs intentionally minimizing income?  How did that work out for them and what were they focused on?

 

 

Probably the most important question I might ask myself is "what does the market see that I don't?"  How am I right and everyone else is wrong?

 

 

And to answer the question about  "what price would be too high right now?", that's an excellent question.  I think $500 or so would be too high for right now, but I don't know if I would sell.  I would probably sell some at that price.  If it reaches that price in the next year I will seriously consider selling then, perhaps.

 

 

Was there ever too high of a price for Berkshire Hathaway prior to the 2000s?  Or is the market just totally wrong about AMZN, has been for 3+ years but never was for Berkshire Hathaway?

 

Does anyone know how much in the way of net tangible assets AMZN shareholders have invested in the company?  What is operating cash flow divided by NTA?

 

Big surprise that you're the only guy asking the right questions on a board full of people who cling to Security Analysis like a religious fundamentalist clings to the bible.

Are they the right questions or are they absolutely absurd? There are legal ways to shield income and their are illegal ways. Unless the author is suggesting fraud, I am suggesting that the questions are non sense.

 

Let me add another question, why don't other companies hire the accountants from amazon and let them work their magic?  I'm sure the government would love that... but of course it is fantasy and not reality.

 

There are numerous ways to reduce income but the most common is to have revenue equal expenses.

 

I would ask the writer to substantiate any of his ideas/questions.

 

Here is the right question. Amazon is obviously growing at all costs so how far can they grow without income before their market share is tapped out. At that point they can focus on profitability, and even if their net margin is a few percentage points like Walmart or Costco they will be immensely profitable. That is what the bet is when it comes to amazon IMO. 

 

I'm sure I wasn't the only one thinking these thoughts.

 

Edited: typos.

[JAllen]

I'd like to ask a series of questions about the company, if I may.  These are meant to spur discussion and cause more people to thoroughly understand AMZN's financials and management intent instead of focusing solely on the fact that the company is currently generating slightly negative GAAP income.

 

Has anyone ever considered the possibility that they may in fact be making money but it doesn't show up on their income statement?  How would you evaluate this?  Why would a company choose to minimize its GAAP income?  How does the company measure profitability?  Is it possible that the company doesn't focus on GAAP profitability but in fact focuses on other profitability measures?  What did Jeff Bezos say in his 1997 letter to shareholders about what financial metrics he would focus on and how the company would make financial decisions?

 

Is the company doing anything that intentionally reduces both GAAP income and free cash flow? 

 

Has the company much more inefficient over the last three years (since 2009 when it generated a ~12% free cash flow margin)?  Are operating expenses permanently higher as a percentage of revenues?  How have gross margins changed since then as well.

 

Could there be any incentives to intentionally minimize income at the company?  Are there other examples of very successful CEOs intentionally minimizing income?  How did that work out for them and what were they focused on?

 

 

Probably the most important question I might ask myself is "what does the market see that I don't?"  How am I right and everyone else is wrong?

 

 

And to answer the question about  "what price would be too high right now?", that's an excellent question.  I think $500 or so would be too high for right now, but I don't know if I would sell.  I would probably sell some at that price.  If it reaches that price in the next year I will seriously consider selling then, perhaps.

 

 

Was there ever too high of a price for Berkshire Hathaway prior to the 2000s?  Or is the market just totally wrong about AMZN, has been for 3+ years but never was for Berkshire Hathaway?

 

Does anyone know how much in the way of net tangible assets AMZN shareholders have invested in the company?  What is operating cash flow divided by NTA?

 

Big surprise that you're the only guy asking the right questions on a board full of people who cling to Security Analysis like a religious fundamentalist clings to the bible.

Are they the right questions or are they absolutely absurd? There are legal ways to shield income and their are illegal ways. Unless the author is suggesting fraud, I am suggesting that the questions are non sense.

 

Let me add another question, why don't other companies high the accountants from amazon and let them work their magic?  I'm sure the government would love that... but of course it is fantasy and not reality.

 

There are numerous ways to reduce income but the most common is to have revenue equal expenses.

 

I would ask the writer to substantiate any of his ideas/questions.

 

Here is the right question. Amazon is obviously growing at all costs so how far can they grow without income before their market share is tapped out. At that point they can focus on profitability, and even if their net margin is a few percentage points like Walmart or Costco they will be immensely profitable. That is what the bet is when to amazon IMO. 

 

I'm sure I wasn't they only one thinking these thoughts.

 

 

Did you read an AMZN annual report thoughtfully before you responded?  There's one way they legally and intentionally choose to minimize GAAP income that is stated in plain English.  This 'way' resulted in reduced income by almost 1% of sales in 2012.  I don't know why I'm reluctant to point it out, but I am, so I won't.

[link01]

I think classic security analysis probably has the tools to decipher amazon's value, it just lacks the a culture among most of its adherents to find a different set of keys within its framework.

 

if warren buffett says Bezos is the best ceo in America, I for one don't take that statement lightly: I highly doubt that WEB would bestow that title on someone who wasn't creating real (as opposed to illusory) economic value for his company & shareholders.

 

Bezos & amazon is a uniquely different sort of beast vs most other businesses, for sure. and I think it will be many more years before amzn 'earns' profits. but it will also many more yrs before it pays any significant income taxes too. and if your co has still substantial growth opportunities in front of it that's a good thing: there will be perpetually 35% more 'profitless' cash flow dollars available to plow back into its businesses until that changes.

 

not only that. but amzn has a much longer time horizon that most co's do for ROI expectations on their new business ventures, between 5 & 7 yrs. in an interview with Charlie rose a couple of years ago Bezos said they are typically between loss & breakeven during that time because in amazons world they are scale-dependent. I wish I had a way of confidently estimating what portion of amzn's capex was maintenance & what part growth capex. so they are constantly carrying around a moving avg of 6 yrs of growth investment earning nothing, along with the operating expenses that also entails.

 

if nothing else its fascinating to watch play out.

 

http://www.kernelmag.com/features/report/4406/amazon-is-taking-over-the-world/#

 

http://timkastelle.org/blog/2013/08/innovation-lessons-from-amazons-shareholder-letters/

 

 

 

 

 

 

[Guest hellsten]

Please excuse my ignorance, I'm going to play devil's advocate. I believe Buffett if he says Bezos is the best CEO in the US, but how much higher can AMZN stock go? AMZN market cap is close to Wal-Mart's. Isn't there a risk of a lost decade even if they become the next Wal-Mart? Wal-Mart's 10-year performance isn't good, competitors both small and large are catching up.

 

10 years ago who thought anyone could compete with Wal-Mart:

…over the next decade we forecast EBIT margin declines because of the inevitable increased competition with Costco  and Amazon , both of which have lower fixed assets bases and run their businesses at much lower profit margins. This, along with the ongoing share losses to the dollar stores, is the reason for our current negative moat trend for Wal-Mart.

 

http://quotes.morningstar.com/stock/s?t=WMT

 

Muscleman's point about the theory of reflexivity works both ways; what happens when Amazon is no longer growing or competitors adapt, won't the self-reinforcing feedback loop work the other way then?

 

The main similarity lies in a self-reinforcing process whereby inflated stock prices can accelerate an underlying trend, which in turn enhances expectations and inflates stock prices until the outcomes fail to sustain expectations and there is a crash

~George Soros

 

Has Amazon used the inflated stock price for acquisitions?

 

Compare SHLD's stock price to AMZN's between 2000-2013 and think about what the market was expecting from the two companies.

 

Maybe WinCo will eat the world:

http://business.time.com/2013/08/07/meet-the-low-key-low-cost-grocery-chain-being-called-wal-marts-worst-nightmare/

 

Does Amazon have a moat or are they just best, and first, at adapting new technology?

[DTEJD1997]

Here is the right question. Amazon is obviously growing at all costs so how far can they grow without income before their market share is tapped out. At that point they can focus on profitability, and even if their net margin is a few percentage points like Walmart or Costco they will be immensely profitable. That is what the bet is when to amazon IMO. 

 

I'm sure I wasn't they only one thinking these thoughts.

 

Ok, if we assume that AMZN is going to turn profitable EVENTUALLY, but they will settle for a margin a few points LOWER than WMT or COST...they will still be making a TON of money!!!!

 

OK, lets look at those margins...WMT's net margin is about 3.6%.  COST's net margin is about 2%.  So AMZN is going to have margin LOWER than that by a few points?  That could arguably be right where they are at now, NOTHING.

 

The other problem is this.  I don't think ANYBODY would say AMZN is a small, startup company.  They have sales in the BILLIONS of dollars!  They have sales of $67 BILLION.  That is too small to scale into profitability?  WTF?????

 

Am I the only one to think that sounds like a cop out.  That they can't and won't ever earn any money and that they are selling naive and gullible investors a "scaling" story?

 

Just you guys wait!  Once AMZN's sales go over $200 BILLION, they will start earning 1% on sales and RAKING in the cash! 

 

OK, so AMZN starts making $2 billion, that equates to about $4.25/share.  So the future P/E will be 85?

 

Of course, Mr. Bezos is a very capable manager!!!  We simpletons who are value investors just don't "grok" what is going on and can't comprehend this new business model!

 

<b>WHERE HAVE I HEARD THIS BEFORE?</b>

[ScottHall]

Here is the right question. Amazon is obviously growing at all costs so how far can they grow without income before their market share is tapped out. At that point they can focus on profitability, and even if their net margin is a few percentage points like Walmart or Costco they will be immensely profitable. That is what the bet is when to amazon IMO. 

 

I'm sure I wasn't they only one thinking these thoughts.

 

Ok, if we assume that AMZN is going to turn profitable EVENTUALLY, but they will settle for a margin a few points LOWER than WMT or COST...they will still be making a TON of money!!!!

 

OK, lets look at those margins...WMT's net margin is about 3.6%.  COST's net margin is about 2%.  So AMZN is going to have margin LOWER than that by a few points?  That could arguably be right where they are at now, NOTHING.

 

The other problem is this.  I don't think ANYBODY would say AMZN is a small, startup company.  They have sales in the BILLIONS of dollars!  They have sales of $67 BILLION.  That is too small to scale into profitability?  WTF?????

 

Am I the only one to think that sounds like a cop out.  That they can't and won't ever earn any money and that they are selling naive and gullible investors a "scaling" story?

 

Just you guys wait!  Once AMZN's sales go over $200 BILLION, they will start earning 1% on sales and RAKING in the cash! 

 

OK, so AMZN starts making $2 billion, that equates to about $4.25/share.  So the future P/E will be 85?

 

Of course, Mr. Bezos is a very capable manager!!!  We simpletons who are value investors just don't "grok" what is going on and can't comprehend this new business model!

 

<b>WHERE HAVE I HEARD THIS BEFORE?</b>

 

Your post reads like that of a crazed hyena. Why not calm down? This isn't a life or death situation, you know.

 

Personally, I think Amazon fits well in to the TCI model.

[JAllen]

Has anyone here read an AMZN 10-K?