AMZN - Amazon.com Inc.

[ScottHall]

Has anyone here read an AMZN 10-K?

 

I can't speak for anyone else, but I have.

[enoch01]

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

 

Interesting - how so?  TCI had: built-in barriers to entry (the existing physical assets), the benefits of accelerated depreciation, scale of operations to increase bargaining power, and a virtuoso capital allocator.  Amazon has benefits of scale, and maybe Bezos has good capital allocation skills (hard for me to tell, although I don't know the company really well).  But what else?

 

What I underestimated for a long time was just how focused Amazon is on customer satisfaction.  That has carried them very far.

[JAllen]

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

 

Interesting - how so?  TCI had: built-in barriers to entry (the existing physical assets), the benefits of accelerated depreciation, scale of operations to increase bargaining power, and a virtuoso capital allocator.  Amazon has benefits of scale, and maybe Bezos has good capital allocation skills (hard for me to tell, although I don't know the company really well).  But what else?

 

What I underestimated for a long time was just how focused Amazon is on customer satisfaction.  That has carried them very far.

 

 

Scott is probably referring to the fact that TCI and Amazon both have CEOs that intentionally maximize expenses to maximize future cash flows, to put it succinctly. 

[Guest wellmont]

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.

 

it can go a lot higher. insane valuations can get more insane. see 1999. and yes, it runs the risk of a lost decade or more.

[LC]

Scott is probably referring to the fact that TCI and Amazon both have CEOs that intentionally maximize expenses to maximize future cash flows, to put it succinctly.

 

But that raises the question which is what started this debate in the first place: when will those future cash flows come, and how certain are you that they will be there?  Then, how do you analyze and price the answer to that question?

[Liberty]

Good piece on Amazon. Love the apex predator analogy for Bezos.

 

http://www.eugenewei.com/blog/2013/10/25/amazon-and-the-profitless-business-model-narrative

 

I just wish I could value the business, and figure out if it's Walmart in the 70s or 90s.

[Guest hellsten]

Good piece on Amazon. Love the apex predator analogy for Bezos.

 

http://www.eugenewei.com/blog/2013/10/25/amazon-and-the-profitless-business-model-narrative

 

I just wish I could value the business, and figure out if it's Walmart in the 70s or 90s.

 

Thanks. To me it looks like the market is valuing Amazon like the Walmart of today. That in combination with the competition from Walmart, Alibaba, Overstock, Sears, and the rest of the world, makes me want to stay away. Yes, I can't value growth stocks like Buffett or Fisher.

[Guest valueInv]

There is another company following the Amazon model, CRM:

 

http://feedproxy.google.com/~r/AVc/~3/LN1dskO-5Zc/they-dont-make-any-money.html

[Palantir]

 

Thanks. To me it looks like the market is valuing Amazon like the Walmart of today. That in combination with the competition from Walmart, Alibaba, Overstock, Sears, and the rest of the world, makes me want to stay away. Yes, I can't value growth stocks like Buffett or Fisher.

 

It is questionable whether Buffett himself is all that great at identifying and valuing growth businesses. He's made a small number of famous investments, but nothing compared to what Peter lynch did consistently.

 

I think Amzn has the potential of bring far more powerful than Walmart and eventually I think it will be, but no doubt valuation is a challenge.

[jschembs]

"Investing for the future at the expense of today's margins" in my opinion is valuable only if the expenses are expected to generate outsized benefits in future years. This is the whole point behind capitalizing expenditures as assets on the balance sheet and slowly amortizing those expenses over future years. I suppose the argument could be made for certain operating expenses, such as R&D, but sales and marketing expenses provide little future benefit. Marketing expenses certainly help build the brand, but you can't simply turn those off and hope to retain the brand awareness.

[ItsAValueTrap]

There are parts of Amazon that are in their infancy and bleeding money.

 

Payment processing companies usually bleed money when they first start.  You can read Paypal's SEC filings before eBay took them over.  They were down over $200M or something like that.  Virtually all of Paypal's competitors failed (and they also spent huge amounts of money chasing the dream)... they too lost hundreds of millions of dollars.  The losses are huge.  Even Google exited payments.

 

I don't think that this accounts for all of Amazon's losses though.  I read Amazon's 10-K and couldn't figure out how much money they are losing on Kindle, how (un)profitable Amazon Payments is, etc.

[Guest valueInv]

There are parts of Amazon that are in their infancy and bleeding money.

 

Payment processing companies usually bleed money when they first start.  You can read Paypal's SEC filings before eBay took them over.  They were down over $200M or something like that.  Virtually all of Paypal's competitors failed (and they also spent huge amounts of money chasing the dream)... they too lost hundreds of millions of dollars.  The losses are huge.  Even Google exited payments.

 

I don't think that this accounts for all of Amazon's losses though.  I read Amazon's 10-K and couldn't figure out how much money they are losing on Kindle, how (un)profitable Amazon Payments is, etc.

 

There is an underlying assumption that the business they enter are going to succeed. Not true:

 

http://gigaom.com/2013/10/25/amazon-publishing-cant-cut-it-in-nyc-kirshbaum-leaves-as-company-plans-to-scale-back-report/

 

There is also an assumption that their existing businesses will continue to do well. Again not true. Amazon has a big CD & DVD business. That got disrupted by mp3 and iTunes. They then built up a music download business. Not that too is getting disrupted by Spotify, Pandora and iTunes Radio. All the money invested in those businesses is not down the drain. They have to go back to square one and start again. In the process, they now are selling Kindles at cost to support their content businesses while at the same time selling content below cost. Even with heaving discounting, it was revealed that iBooks was gaining marketshare during the antitrust trial.

[Guest valueInv]

Another price drop:

 

http://feedproxy.google.com/~r/Techcrunch/~3/LqchqaRwX3c/

[Liberty]

HBR interview with Bezos (audio and transcript) from earlier this year:

 

http://blogs.hbr.org/2013/01/jeff-bezos-on-leading-for-the/

 

Interesting, he quotes both Buffett and Ben Graham within the first 3 mins.

[Guest ajc]

Profits? Amazon Prefers Technology | MIT Technology Review

 

Amazon’s massive investments in technology shape the future for retailers everywhere.

 

"Why do some stores succeed while others fail? Retailers constantly struggle with this question, battling one another in ways that change with each generation.

In the late 1800s, architects ruled. Successful merchants like Marshall Field created palaces of commerce that were so gorgeous shoppers rushed to come inside.

In the early 1900s, mail order became the “killer app,” with Sears Roebuck leading the way. Toward the end of the 20th century, ultra-efficient suburban discounters like Target and Walmart conquered all..."

 

http://www.technologyreview.com/news/520801/no-stores-no-salesmen-no-profit-no-problem-for-amazon/#comments

 

 

[fareastwarriors]

Amazon, Postal Service to Start Sunday Package Deliveries

 

http://www.bloomberg.com/news/2013-11-11/amazon-postal-service-to-start-sunday-package-deliveries.html

[fareastwarriors]

http://online.wsj.com/news/articles/SB10001424052702303559504579196043034413108?mod=WSJ_business_whatsNews

 

Amazon's Greatest Weapon: Jeff Bezos' Paranoia

[Palantir]

Given the growth rates that they have been moving at, their revenue should be x10 in ten years, if not greater. That will put them at a larger size than Walmart. With a 5.5% FCF margin on that... we get like 32B in FCF, and with a 15x multiplier, should put the firm at 480B. So if you discount that to today....should give you a roughly 11% return.

 

E commerce is growing portion of total retail, and this is growing its ecommerce marketshare, according to a VIC post on this....I don't see why growth should stall suddenly.

[Grenville]

Article below is an WSJ interview with Andy Jazzy, head of AWS.

 

"Meet the Man Who Really Runs the Internet"

http://online.wsj.com/news/articles/SB10001424052702304868404579194353031011652

 

WSJ: What is the annual revenue of AWS? Is it profitable?

 

Mr. Jassy: You know I can't disclose that. We don't disclose our financial results. It will be a very significant free cash flow generating business for Amazon.

[rkbabang]

Maybe Amazon will someday spin off its non-core retail sales operations.

 

Jeff Bezos Believes AWS Could Be Amazon’s Biggest Business

[Guest valueInv]

Article below is an WSJ interview with Andy Jazzy, head of AWS.

 

"Meet the Man Who Really Runs the Internet"

http://online.wsj.com/news/articles/SB10001424052702304868404579194353031011652

 

WSJ: What is the annual revenue of AWS? Is it profitable?

 

Mr. Jassy: You know I can't disclose that. We don't disclose our financial results. It will be a very significant free cash flow generating business for Amazon.

 

In other words, it is not currently.

[Guest valueInv]

If you wonder why the server market is tanking:

 

http://feedproxy.google.com/~r/OmMalik/~3/4qc8UjgeUTQ/

[txlaw]

Article below is an WSJ interview with Andy Jazzy, head of AWS.

 

"Meet the Man Who Really Runs the Internet"

http://online.wsj.com/news/articles/SB10001424052702304868404579194353031011652

 

WSJ: What is the annual revenue of AWS? Is it profitable?

 

Mr. Jassy: You know I can't disclose that. We don't disclose our financial results. It will be a very significant free cash flow generating business for Amazon.

 

And you better believe that every single dollar of profit coming in from AWS is going right back into rapidly building out more capacity.  I saw one analyst saying that he thinks AWS has multiples of the capacity of the other large players when it comes to public cloud infrastructure.

 

However, the competition clearly is heating up.  I think that IaaS/PaaS providers who support both public, private, and hybrid cloud are going to be gaining market share.  People like Redhat are doing some pretty cool stuff -- OpenShift seems to be quite good.

 

But the pie is expanding at a rapid rate, so there's room for many players to win.

[Guest valueInv]

Article below is an WSJ interview with Andy Jazzy, head of AWS.

 

"Meet the Man Who Really Runs the Internet"

http://online.wsj.com/news/articles/SB10001424052702304868404579194353031011652

 

WSJ: What is the annual revenue of AWS? Is it profitable?

 

Mr. Jassy: You know I can't disclose that. We don't disclose our financial results. It will be a very significant free cash flow generating business for Amazon.

 

And you better believe that every single dollar of profit coming in from AWS is going right back into rapidly building out more capacity.  I saw one analyst saying that he thinks AWS has multiples of the capacity of the other large players when it comes to public cloud infrastructure.

 

However, the competition clearly is heating up.  I think that IaaS/PaaS providers who support both public, private, and hybrid cloud are going to be gaining market share.  People like Redhat are doing some pretty cool stuff -- OpenShift seems to be quite good.

 

But the pie is expanding at a rapid rate, so there's room for many players to win.

 

Which means the pie is shrinking for the server market. Note that he said that they pay 30% less

for servers. "Long runway" indeed.

[txlaw]

Article below is an WSJ interview with Andy Jazzy, head of AWS.

 

"Meet the Man Who Really Runs the Internet"

http://online.wsj.com/news/articles/SB10001424052702304868404579194353031011652

 

WSJ: What is the annual revenue of AWS? Is it profitable?

 

Mr. Jassy: You know I can't disclose that. We don't disclose our financial results. It will be a very significant free cash flow generating business for Amazon.

 

And you better believe that every single dollar of profit coming in from AWS is going right back into rapidly building out more capacity.  I saw one analyst saying that he thinks AWS has multiples of the capacity of the other large players when it comes to public cloud infrastructure.

 

However, the competition clearly is heating up.  I think that IaaS/PaaS providers who support both public, private, and hybrid cloud are going to be gaining market share.  People like Redhat are doing some pretty cool stuff -- OpenShift seems to be quite good.

 

But the pie is expanding at a rapid rate, so there's room for many players to win.

 

Which means the pie is shrinking for the server market. Note that he said that they pay 30% less

for servers. "Long runway" indeed.

 

No, there's really no way to definitively say that the pie is shrinking.  ASPs and margins are decreasing for sure.  But the units are expanding exponentially (just take a look at the non public cloud datacenter market growth). 

 

There's definitely a long runway.