AMZN - Amazon.com Inc.

[dwy000]

And before I get called out on it, yes, I know they don't "manufacture" hardware.  I meant that they are designing and creating hardware and other proprietary items instead of reselling purchased items.

[fareastwarriors]

Amazon Planning to Unveil Smartphone to Vie With Apple's

 

 

 

http://www.bloomberg.com/news/2014-06-04/amazon-said-to-be-ready-to-unveil-smartphone-to-vie-with-apple.html

[Fat Pitch]

Fat pitch - I agree that IF they can get back to opex levels from 10 years ago they will be very cash flow positive.  But what I don't get is why the belief that the expense levels of 10 years ago (when growth was much faster than today) should be considered the "normal" level.  What is the evidence that today's expense levels are not the "new normal"?

 

Well I'm not 100% sure if they will revert back. Amazon has entered new markets since 2006 so there are obviously high start up costs and investments  being made by them. There's evidence they are extracting more from each dollar of revenue since we are witnessing gross margins creeping up over the years.

 

There seems to be a suggestion that they are stuffing growth expenses into the operating expense line.  What's the basis for this?  I can't find anything in the 10Ks or Q's.  And top line growth is somewhat slower than it was 5-10 yrs ago.  Also, this is a bit of a different beast than in 06.  They now manufacture hardware and their fastest growing business (AWS) is a high opex operation which would suggest the higher expense levels are less than temporary.

 

The only basis we got is did Amazon become less efficient at shipping out orders? I seriously doubt it, if anything they gotten more efficient since economies of scale is at play here. So with that logic the increase in these cost centers are probably related to AWS and their other business lines.

 

Again, IF they can revert to historic levels this can be very profitable but trends and evidence suggest it's headed in the other direction.  Curious as to why the belief this can and will reverse sharply?

 

The only way we will know if we can get our hands on their line item detail of their financials. You think they'll mail it over if we give IR a call?  :P

[Spekulatius]

I am not sure that the increases in cost reverse themselves either:

FullFillment: Prime and other initiatives lead to smaller order size, which will have higher fullfillment costs. Unless they are willing to give up on this business, this  will likely stay high and probably rise more.

 

Some of their service/cloud business probably has higher gross margins but also higher expenses than the core retail business, I think the change in AMZN business mix very likely is responsible for the changes in the income statement ratios.

 

I see no evidence that anything reverts back to where it was a couple if years ago.

 

[JAllen]

 

http://recode.net/2014/06/10/with-amazon-in-mind-ibm-begins-giving-retail-clients-same-day-delivery-tool/

 

 

“A lot of our clients are really looking at how do we more effectively compete against Amazon,”

 

Evidence of AMZN's competitive advantages? 

 

 

Now, I wonder if partnering with just hundreds of these shops is going to get people to switch from AMZN who has something like 20M products...  It is non-trivial, to say the least to offer that many products.

[Palantir]

What a pain, this keeps rising, was hoping to add to my position.

[fareastwarriors]

Prime Music coming soon

 

http://online.wsj.com/articles/amazon-launches-music-streaming-service-1402571241

 

Amazon.com Inc. AMZN -1.55% on Thursday rolled out a music-streaming service, with some limitations.

 

The service, available only to members of Amazon's $99-per-year Prime membership program in the U.S., offers about one million tracks from thousands of albums, the company said. But it doesn't include songs from Vivendi SA VIV.FR -0.08% 's Universal Music Group, the largest label, and tracks from Warner Music Group and Sony Corp. 6758.TO +0.24% will generally be more than six months old.

[Guest ajc]

 

Amazon’s 3D smartphone is a gimmick—but it could present a huge retail opportunity

 

 

It’s rumored that Amazon will launch its own 3D smartphone on June 18.

While it may be compelling, a sexy 3D feature won’t catapult Amazon into the lead of the cut-throat smartphone category.

If this were true, the EVO 3D, introduced two years ago by HTC and the W960, introduced by Samsung four years ago, would have been top sellers rather than niche products.

However, a smartphone that renders 3D images does present an internet retailing opportunity for Amazon. It would be useful to Amazon in selling tangible consumer merchandise, just like Amazon’s Kindle Fire tablet was designed to improve Amazon’s merchandizing of ebooks and video streaming products.

 

3D images would give consumers a multidimensional mobile view of the products that they might buy on amazon.com, which would likely increase the conversion rates of users viewing product listings into purchases.

Typically, a listing without an image won’t convert as well as one with an image, and a listing with an optimized image will convert even better. The multiple cameras reported to be in the Amazon smartphone could be applied to creating rich 3D images that would improve conversion rates even further.

Data aren’t available on conversion rates attributable to 3D mobile imaging but there are many case studies of increased e-commerce conversion rates from 360-degree rotatable web images. Adobe’s Darin Archer, head of Product Strategy for eCommerce told Quartz...

 

 

http://qz.com/221076/amazons-3d-smartphone-is-a-gimmick-but-it-could-present-a-huge-retail-opportunity/

 

 

 

[txlaw]

http://www.theverge.com/2014/6/18/5820282/12-things-that-turned-amazon-into-a-superpower

[Liberty]

Amazon announcing its new phone right now:

 

http://live.arstechnica.com/amazons-smartphone-unveil/

 

Product page: http://www.amazon.com/dp/B00EOE0WKQ

[Phaceliacapital]

Wow

[txlaw]

http://live.arstechnica.com/amazons-smartphone-unveil/

http://www.businessweek.com/articles/2014-06-17/inside-the-secretive-r-and-d-lab-behind-the-amazon-phone

http://www.businessweek.com/articles/2014-06-18/amazons-fire-phone-what-you-need-to-know

[Viking]

Being a current Apple shareholder, I followed todays announcement from Amazon with great interest. Apple's greatest risk is that someone comes out with a devices that displaces the iPhone, Apple's most important piece of hardware. Amazon certainly had everyone's attention today.

 

My quick read is the Amazon phone launched today is not an iPhone killer. The price point is much higher than I expected (priced as a premium device). It will not carry any Google services (Maps etc). It looks like they are targeting it at Prime members. It looks like a niche product; my guess is it will struggle to gain even as much share as the kindle has in the tablet segment.

[tengen]

The Amazon phone seems designed to turn people into shopping addicts.

 

 

[Liberty]

Lots of interesting discussion on the new phone here, with a wide variety of opinions:

 

https://news.ycombinator.com/item?id=7911934

[dwy000]

Seems more like the phone Amazon wants you to have than the phone you want to have (unless you live to shop online in which case you're already a big Amazon user).  Somewhat contrary to their whole premise of customer first.

[rkbabang]

Seems more like the phone Amazon wants you to have than the phone you want to have (unless you live to shop online in which case you're already a big Amazon user).  Somewhat contrary to their whole premise of customer first.

 

Which is what I expected, and why I thought it would be dirt cheap, like $49 for prime members with an Amazon subsidized unbelievably inexpensive all inclusive plan from AT&T.  But what we have is the regular AT&T service at regular prices and a phone that isn't much cheaper than the iPhone.  I don't see much of a reason for anyone to pick the Amazon phone over other options.  Even for Prime members a tablet makes more sense for reading or watching movies than a phone does.  I must be missing something, because I don't get it.

[txlaw]

I'm also skeptical that the Fire Phone will get any meaningful market share from the other high end phone providers at this time.  Certainly not at the price point they will be selling this at.

 

Having said that, anyone selling smart phones on the "high end" ought to be disturbed because Amazon is likely interested in selling the phone at cost or at a very small profit.  That hardware can't be cheap, and if the next iterations of the phone get better and better but remain on the "high end," then that could lead to accelerated margin compression on the "high end."  Not only do you have a shift in consumer preferences to "good enough" devices on the low- to medium-end, but you also have a "high end" where competitors are starting to sell at cost because of a different biz model.  Not good.

[txlaw]

The most interesting thing to me was Firefly.  That could be a game changer for AMZN in so many ways. 

 

If I were them, I would eventually partner with other device manufacturers to put that functionality into their phones.  For now, I guess they will keep it exclusive to Fire Phone.

[dwy000]

That's a great point Txlaw.  The Firefly aspect is really the only differentiating factor of this phone (3d seems gimmicky). Why go to the expense of building and marketing your own phone when you could put this (even free) in other peoples phones.  And to have it for the same price as all the better, more established phones with much broader Eco-systems seems odd. Who is the target market here?

 

I feel that with all the work they've done and hype they've generated I must be missing some angle to it - but for the life of me I can't figure it out!

[rkbabang]

That's a great point Txlaw.  The Firefly aspect is really the only differentiating factor of this phone (3d seems gimmicky). Why go to the expense of building and marketing your own phone when you could put this (even free) in other peoples phones.  And to have it for the same price as all the better, more established phones with much broader Eco-systems seems odd. Who is the target market here?

 

I feel that with all the work they've done and hype they've generated I must be missing some angle to it - but for the life of me I can't figure it out!

 

+1  I would understand that strategy 100%.  It seems to me the way to go.  Why concentrate on the few people who will buy a Fire phone when you could get to every Amazon customer with a smartphone?

[muscleman]

That's a great point Txlaw.  The Firefly aspect is really the only differentiating factor of this phone (3d seems gimmicky). Why go to the expense of building and marketing your own phone when you could put this (even free) in other peoples phones.  And to have it for the same price as all the better, more established phones with much broader Eco-systems seems odd. Who is the target market here?

 

I feel that with all the work they've done and hype they've generated I must be missing some angle to it - but for the life of me I can't figure it out!

 

+1  I would understand that strategy 100%.  It seems to me the way to go.  Why concentrate on the few people who will buy a Fire phone when you could get to every Amazon customer with a smartphone?

 

 

I don't agree because I think the main profit source will be from the app store. I know for Apple's app store, whenever some app developer tries to charge a customer, he has to give 30% of that to Apple. So this is a capital light investment that has lots of growth potential.

[rkbabang]

That's a great point Txlaw.  The Firefly aspect is really the only differentiating factor of this phone (3d seems gimmicky). Why go to the expense of building and marketing your own phone when you could put this (even free) in other peoples phones.  And to have it for the same price as all the better, more established phones with much broader Eco-systems seems odd. Who is the target market here?

 

I feel that with all the work they've done and hype they've generated I must be missing some angle to it - but for the life of me I can't figure it out!

 

+1  I would understand that strategy 100%.  It seems to me the way to go.  Why concentrate on the few people who will buy a Fire phone when you could get to every Amazon customer with a smartphone?

 

 

I don't agree because I think the main profit source will be from the app store. I know for Apple's app store, whenever some app developer tries to charge a customer, he has to give 30% of that to Apple. So this is a capital light investment that has lots of growth potential.

 

That would be the case if the main idea was to sell phones or apps, but if it is to get people to shop at Amazon.com (which is what this phone looks like it was specifically designed to do) then creating Firefly android/iphone apps and giving them away for free would be a better strategy.

 

[Liberty]

http://stratechery.com/2014/amazons-whale-strategy/

[Sunrider]

Guys

 

Apologies if this is (a) overly simplistic, (b) has been discussed and I'm just not aware of it.

 

In fact I'm sure this has been discussed but I thought I'd throw it out there to get some views. I've held a small position in AMZN for ages and recently added to it with LEAPS. The recent Economist and FT articles got me thinking though ... I'm a fan of toy models and the following is a rough calc, please bear with me:

 

AMZN is doing about 75bn sales a year (more this year but some article I saw said about 74bn in its own sales). So assuming that eventually they choose to make "normal" margins on this and stop investing - what would it mean? Well, WMT has about a 5.9% operating margin. Let's say AMZN can do much better (because the cloud stuff may be higher margin, they killed competitions, whatever). Say it's 10%, so 7.4bn in Earnings. So at today's market cap of 149bn that would put us at a 20 P/E. Not cheap, not outrageous either.

 

Of course the margin assumptions are key here - but just for discussion purposes - does this make AMZN a good buy because you expect them to keep growing in excess of what one would discount back from the point that they choose to make profits?

 

... not trying to start a possible war-of-words here. I think AMZN has growth ahead of it but I also believe that eventually fundamental laws of economics assert themselves. Just curious how others here see it?

 

Thanks - C.