AMZN - Amazon.com Inc.

[Guest valueInv]

- Q3 was the first unprofitable quarter for amazon in years. Rereading the thread it feels like early 2000, when amazon had never made a profit…. It is now a very different business with years of growth and profit. Back when I joined in 2001 revenue was about $2.5bn with no profit, it will be above $60bn this year and profitable. Do you know any other companies that have grown that much over the past 12 years?

Apple? Google?

 

- Profitability has decreased recently because they are investing heavily in tech (kindle, pads, etc…) and in new fulfillment centers. FCs are the backbone of the business, a huge moat because it’s super difficult to replicate and amazon has developed over the years a huge expertise at it. It’s a significant cost now but it will pay back very nicely in the future: they’ll have the infrastructure and the competition won’t;

 

Also, their investments should show up in their capex? Why is their operating income negative?

 

What is the impact of having to charge sales tax on their business?

 

- I think amazon’s moat keeps growing all the time: millions of people buys stuff there systematically because they they know they’ll get a good deal. The warehouse infrastructure is little talked about but is a huge moat. Kindle is locking in the digital book market;

Why are they increasing FCs and warehouses  if their business is moving from physical goods? Is it because they were forced to build more FCs are part of their settlement deals?

 

If people are shopping at Amazon because they know they get a good deal, how will Amazon be able to raise prices and margins? As soon they do, the customers and the moat is gone.

[benchmark]

Why are they increasing FCs and warehouses  if their business is moving from physical goods? Is it because they were forced to build more FCs are part of their settlement deals?

 

If people are shopping at Amazon because they know they get a good deal, how will Amazon be able to raise prices and margins? As soon they do, the customers and the moat is gone.

 

I think Amazon's moat on retail is really the scale and the know-hows on supply-chain and delivery, much like Walmart. In addition, the move to cloud/content/AWS is something that will pay off in the long run.

[Eric50]

- Q3 was the first unprofitable quarter for amazon in years. Rereading the thread it feels like early 2000, when amazon had never made a profit…. It is now a very different business with years of growth and profit. Back when I joined in 2001 revenue was about $2.5bn with no profit, it will be above $60bn this year and profitable. Do you know any other companies that have grown that much over the past 12 years?

 

Apple? Google?

 

 

Yes Apple and Google but who else? And I would argue that Amazon is a much better business long term than Apple. Apple is currently red hot as it makes the cool toys that everybody wants to have, but who knows if its products are going to be that cool in 5 years? I don't know about Apple but I know that in 5 years more people will be buying stuff from amzn.

 

- Profitability has decreased recently because they are investing heavily in tech (kindle, pads, etc…) and in new fulfillment centers. FCs are the backbone of the business, a huge moat because it’s super difficult to replicate and amazon has developed over the years a huge expertise at it. It’s a significant cost now but it will pay back very nicely in the future: they’ll have the infrastructure and the competition won’t;

 

Also, their investments should show up in their capex? Why is their operating income negative?

 

 

Yes, their investments show up in capex. Capex increased by $500m yoy so far this year. Operating income is negative primarily because of the impairment of the goodwill on the living social investment (that was a huge mistake).

 

What is the impact of having to charge sales tax on their business?

 

 

This was a main concern of mine a few years ago as I thought it would have a huge negative impact. I'm less concerned now as I think their moat has increased. People will still be buying from amazon even if prices increase with sales tax. I thought that amazon gave up easily last year in that sales tax battle so I suspect that's a sign they aren't too worried.

 

Also, they are competing more and more with the physical stores with same day delivery.

 

- I think amazon’s moat keeps growing all the time: millions of people buys stuff there systematically because they they know they’ll get a good deal. The warehouse infrastructure is little talked about but is a huge moat. Kindle is locking in the digital book market;

 

 

Why are they increasing FCs and warehouses  if their business is moving from physical goods? Is it because they were forced to build more FCs are part of their settlement deals?

 

 

No, they are increasing the # of FCs because they know the business is growing fast and they need the infrastructure to handle the increased volume of stuff to pick/pack/ship. The range of their product lines keeps increasing.

 

If people are shopping at Amazon because they know they get a good deal, how will Amazon be able to raise prices and margins? As soon they do, the customers and the moat is gone.

 

 

Remember this is a retailer. It doesn't have huge margins. They make most of their money on volume. Why would they raise prices? They compete on price... I suggest you read Bezos first letter to shareholders to better understand how he thinks.

 

[bennycx]

For anyone who thinks Amazon doesn't have a huge moat, try to start an online retail store and compete with them and report back in a couple years.

 

Here's another issue I see with Amazon, taken from the Western Union discussion:

 

Warren is somewhat obsessed with companies that can raise their prices on their customers.  e.g. if Moody's raised its prices, Berkshire would still pay the higher price for bond ratings.

 

If Western Union is lowering its prices due to its competition then maybe its moat/advantage is not that big at all.

 

Can Amazon raise their prices? I'm not so sure. Does that mean they don't have a moat? Not quite, if they are going to maintain themselves as the low cost/most reliable online retailer.

 

I think it's important to realize what type of company Amazon is trying to stabilize themselves as: the low-cost online retailer with amazing shipping service. Can they execute on this is the real story.

 

Hey. First time poster here. That's exactly how I think of Amazon at the moment. Selling at almost cost IS their moat. There is almost no way they will be able to raise prices without losing this moat. Unless they capture a monopoly (ok) with very very large online retailing volume (suspect), they won't be able to make much profit from retailing.

 

Of course, another way to build the moat is through a whole "Amazon brand" via other tech services such as cloud etc, but the future of that is too early to tell in my books.

[Guest valueInv]

Yes, their investments show up in capex. Capex increased by $500m yoy so far this year. Operating income is negative primarily because of the impairment of the goodwill on the living social investment (that was a huge mistake).

 

Again, impairment of goodwill is not included in operating income. They lost $27M in operating income separate from the $169M writedown for the Living Social deal.

 

If you look at net income (including impairment of goodwill), they lost $274M this quarter. 

[Cardboard]

I will retract fraud. This is not the right word.

 

Regarding many of your points Eric50, Amazon makes liberal use of restricted stock options and this cost is not included in operating cash flow which is then used to boost the free cash flow measure. It was $597 million over the last 9 months and there are 15.6 million shares in total that eventually will be issued. Free cash flow is arguably also "incorrect" since from it, is not substracted the cost of acquisitions which many are for pure cost savings, here is the latest:

 

"In May 2012, we acquired Kiva Systems, Inc. for a purchase price of $678 million. In the nine months ended September 30, 2011, we acquired certain other companies for an aggregate purchase price of $738 million. The primary reasons for our 2012 and 2011 acquisitions were to improve fulfillment center productivity and to expand our customer base and sales channels. "

 

These acquisitions added a grand total of $17 million to their revenues so far and a loss of $50 million. These are acquisitions that should be considered as operating costs.

 

"Operating income is negative primarily because of the impairment of the goodwill on the living social investment (that was a huge mistake)."

 

This is incorrect as stated also by valueInv. The impairment of goodwill is included in the equity-method investments which is below the line and not at all part of operating income.

 

"Also, they are competing more and more with the physical stores with same day delivery."

 

This IMO will cause the most issues with Amazon and a huge change from when you used to work there. Offering same day delivery is a nice feature for consumers, but terrible for them on an operating cost standpoint. If you have a warehouse in every decent size city, then where is the advantage vs a Wal-Mart, Home Depot or other when you add to it shipping costs? Inventory management turns into a different beast especially with their extremely large offering, the investment in physical location and staffing explodes. It becomes a very different business model than what they had before and they still will never obtain the "instant gratification" and social aspect of shopping.

 

Wal-Mart is actually testing this feature with their online site. However, they already have warehouses everywhere or the physical infrastructure in place. If they figure how to manage it properly, I would say that they are ahead of Amazon. Also, with Target, Best Buy and others now offering to match their prices I think that they are in for a rude awakening on sales and profitability. Sales tax will also play a significant role, but this is being dismissed or should I say not being addressed by management as in the last conference call. We should see in future quarters as now the largest state, California and others are just starting to force them to charge taxes.

 

Regarding profitability, Amazon will be barely profitable this year. Their guidance for Q4 operating margin is from minus $490 million to positive $310 million. Assuming $0 since it would be a "beat", operating income for 2012 would be $271 million or an operating margin of 0.4%. EPS would be around $0.35 on a $232 stock or a 660 P/E (this too excludes the LivingSocial losses). In other words, they expect to breakeven on the Holiday Season quarter for mostly a retailer with $62 billion in sales. Makes no sense. If I exclude stock compensation, operarting margin would be 1.9%. Should I exclude more since other expenses have grown faster than sales lately for so called "future investment"? Where do I stop?

 

According to my S&P 500 guide, Wal-Mart reached such sales level in 1994 and had a return on equity of 23.9% and an operating margin of 6.5% while being hit by large depreciation amounts and all the costs associated with "brick and mortars" which apparently is a high cost of doing business vs the Amazon business model. It grew sales 22% the next year. In other words, Amazon should be demonstrating leading retailing margins and high sales growth since their business model is now apparently the lowest cost way. The numbers show otherwise. Operating margins were 4.6% in 2009, 4.1% in 2010, 1.8% in 2011 and 0.4% this year. Sales growth from 2009 to 2010 were 40%, 2010-2011: 41% and this year 29%. So more investments or higher cost per $ of sale and declining sales growth in a growing economy?

 

IMO, if goods were sold at a price to generate reasonable margins like a Wal-Mart, sales would decline. So the business model is not the lowest cost because if it was, there would be no problem to make money along the way and grow market share. So they have to resort to "dumping" their goods at cost (operating costs, not just cost of goods sold) to generate sales and hopefully find enough cash flow through it to continue their expansion plan without depleting their cash pile. Unfortunately, it is coming down now and will become more and more noticed by the investment community.

 

I am short as well LULU and CRM, so I guess we agree on these, but not on AMZN.

 

Cardboard

 

 

[Sportgamma]

 

I believe the subject of off balance sheet debt has not been brought up on this thread yet. There is an article by a short on seeking alpha on how "Amazon.com is using external entities to handle a good portion of its capex, so that it doesn't have to recognize the cash outflows associated with that capex."

 

http://seekingalpha.com/article/656591-amazon-com-s-hidden-debt

 

@Eric50, since you have experience on working at the finance department at Amazon, your comments on this subject would be much appreciated.

[Eric50]

I will retract fraud. This is not the right word.

 

Thank you. This is what originally triggered my response.

 

Regarding many of your points Eric50, Amazon makes liberal use of restricted stock options and this cost is not included in operating cash flow which is then used to boost the free cash flow measure. It was $597 million over the last 9 months and there are 15.6 million shares in total that eventually will be issued. Free cash flow is arguably also "incorrect" since from it, is not substracted the cost of acquisitions which many are for pure cost savings, here is the latest:

 

"In May 2012, we acquired Kiva Systems, Inc. for a purchase price of $678 million. In the nine months ended September 30, 2011, we acquired certain other companies for an aggregate purchase price of $738 million. The primary reasons for our 2012 and 2011 acquisitions were to improve fulfillment center productivity and to expand our customer base and sales channels. "

 

These acquisitions added a grand total of $17 million to their revenues so far and a loss of $50 million. These are acquisitions that should be considered as operating costs.

 

I don't disagree with you. It's fine with me as long as we know it and it's consistent over time.

 

"Operating income is negative primarily because of the impairment of the goodwill on the living social investment (that was a huge mistake)."

 

This is incorrect as stated also by valueInv. The impairment of goodwill is included in the equity-method investments which is below the line and not at all part of operating income.

 

 

I agree this is a worrying trend. I suspect the loss is driven by the Q3 labor ramp up in all the new FCs and higher tech charges (new hires).

 

"Also, they are competing more and more with the physical stores with same day delivery."

 

This IMO will cause the most issues with Amazon and a huge change from when you used to work there. Offering same day delivery is a nice feature for consumers, but terrible for them on an operating cost standpoint. If you have a warehouse in every decent size city, then where is the advantage vs a Wal-Mart, Home Depot or other when you add to it shipping costs? Inventory management turns into a different beast especially with their extremely large offering, the investment in physical location and staffing explodes. It becomes a very different business model than what they had before and they still will never obtain the "instant gratification" and social aspect of shopping.

 

Wal-Mart is actually testing this feature with their online site. However, they already have warehouses everywhere or the physical infrastructure in place. If they figure how to manage it properly, I would say that they are ahead of Amazon. Also, with Target, Best Buy and others now offering to match their prices I think that they are in for a rude awakening on sales and profitability. Sales tax will also play a significant role, but this is being dismissed or should I say not being addressed by management as in the last conference call. We should see in future quarters as now the largest state, California and others are just starting to force them to charge taxes.

 

Amazon charges a fee with same day delivery. Why would it be terrible for them on an operating cost standpoint? They'll make money out of it.

 

I think they are very good operationally and will be competitive on cost (more than Walmart as they won't have to deal with an existing structure and can optimize for same day delivery). I'm sure there are lots of people who will be happy to order something in the morning and have it deliver to their home sometimes in the afternoon, even for a small fee. They'd avoid a trip to the nearest Walmart, Target, etc.

 

I agree sales tax is the big unknown. It might be the trigger that makes the stock tank.

 

 

Regarding profitability, Amazon will be barely profitable this year. Their guidance for Q4 operating margin is from minus $490 million to positive $310 million. Assuming $0 since it would be a "beat", operating income for 2012 would be $271 million or an operating margin of 0.4%. EPS would be around $0.35 on a $232 stock or a 660 P/E (this too excludes the LivingSocial losses). In other words, they expect to breakeven on the Holiday Season quarter for mostly a retailer with $62 billion in sales. Makes no sense. If I exclude stock compensation, operarting margin would be 1.9%. Should I exclude more since other expenses have grown faster than sales lately for so called "future investment"? Where do I stop?

 

According to my S&P 500 guide, Wal-Mart reached such sales level in 1994 and had a return on equity of 23.9% and an operating margin of 6.5% while being hit by large depreciation amounts and all the costs associated with "brick and mortars" which apparently is a high cost of doing business vs the Amazon business model. It grew sales 22% the next year. In other words, Amazon should be demonstrating leading retailing margins and high sales growth since their business model is now apparently the lowest cost way. The numbers show otherwise. Operating margins were 4.6% in 2009, 4.1% in 2010, 1.8% in 2011 and 0.4% this year. Sales growth from 2009 to 2010 were 40%, 2010-2011: 41% and this year 29%. So more investments or higher cost per $ of sale and declining sales growth in a growing economy?

 

IMO, if goods were sold at a price to generate reasonable margins like a Wal-Mart, sales would decline. So the business model is not the lowest cost because if it was, there would be no problem to make money along the way and grow market share. So they have to resort to "dumping" their goods at cost (operating costs, not just cost of goods sold) to generate sales and hopefully find enough cash flow through it to continue their expansion plan without depleting their cash pile. Unfortunately, it is coming down now and will become more and more noticed by the investment community.

 

I am short as well LULU and CRM, so I guess we agree on these, but not on AMZN.

 

 

 

Re guidance, the philosophy is - as many other fast growing businesses - under-promise, over-deliver. so I would not take that too seriously.

 

You are making some good points on profitability. The way I see it is that management knows about that but wants to build up the infrastructure and the market shares. They might be in a phase of building, growing, almost regardless of profits. Back in 1998 the motto was "get big fast"; the goal was to grow the top line as fast as possible and not to worry about the bottom line. It lasted a couple of years. Once they got the volume they wanted, they started to get serious and look at the cost. After the correction of 2000 it paid off nicely for the shareholders. We might be in a similar phase, with heavy investments and little attention to the bottom line. Knowing the quality of management, I suspect it will pay off over time, maybe also after a heavy correction.

 

As I said before if I were forced to take a position now, I would be short. This would be more a valuation short as I do not see any catalyst (the only one I could see is a negative impact of collecting sales tax). I wish you well with that trade; you might be right. But long term, I really believe amazon is making the right choices and that it will be even more dominant in 10-15 years.

 

 

 

[Eric50]

 

I believe the subject of off balance sheet debt has not been brought up on this thread yet. There is an article by a short on seeking alpha on how "Amazon.com is using external entities to handle a good portion of its capex, so that it doesn't have to recognize the cash outflows associated with that capex."

 

http://seekingalpha.com/article/656591-amazon-com-s-hidden-debt

 

@Eric50, since you have experience on working at the finance department at Amazon, your comments on this subject would be much appreciated.

 

This was after my time there. Your guess is as good as mine.

[Grenville]

Amazon adds a monthly option for prime membership at 7.99 vs 79/year.

[Grenville]

Short but nice interview with Amazon Studios chief:

 

Why He Ditched Posh Hollywood Perks: 10 Questions With Amazon Studios Chief Roy Price

http://www.wired.com/business/2012/11/amazon-studios-roy-price/

 

Some topics from the interview:

1. Amazon Studios - Enabler lowering cost of movie/tv production

2. Culture at Amazon

3. Frugality

 

From the interview:

1.  "The idea that we’ll put ideas in front of actual movie and TV customers and see if they like it. That can be a huge opportunity for certain projects. Movies cost a lot, and [movie executives] would like to have some assurance that people are going to be interested. Sometimes original stories have a more difficult time because they’re more speculative and require more risk. Our system can de-risk those projects, actually put them in front of customers and get a reaction."

 

2. "Embracing change is central to Amazon’s DNA. You wouldn’t think you would have to explain to people that things change, but you really do. Some people just truly, totally believe it, and some people secretly harbor doubts. It’s core to Amazon’s culture that we want to innovate and think big and it’s great to be at a place like that."

 

3."Wired: Was it tough switching from going out for these long sushi lunches, or whatever it is in Hollywood, versus, OK, I’m in a desk that’s made out of plywood in Seattle?

 

Price: Well, I just flew 11 hours yesterday back to Seattle from our dev center in Edinburgh, Scotland, where they’re doing some of the engineering for some of the new things we’ll be launching over the next year. I sat there in row 42 in coach of the plane, so I can assure you that the cultures are fairly different."

[Grenville]

Nice article on Bezos in Fortune's article naming him Business Person of the Year

 

Amazon's Jeff Bezos: The ultimate disrupter

http://management.fortune.cnn.com/2012/11/16/jeff-bezos-amazon/

 

items from the article:

+ Meetings where the first 30 minutes are in silence reading a 6 page memo

+ Cash compensation is low for employees, employees buy their own lunches

[Grenville]

Amazon removed the 7.99/month option on prime, looks like it was a "test".

 

http://www.slashgear.com/amazon-axes-monthly-prime-option-19257510/

[Grenville]

Amazon is raising 3bln in debt for the first time in over 10 years.

 

0.65% Notes due 2015 - 750mln

1.20% Notes due 2017 - 1bln

2.50% Notes due 2022 - 1.25bln

 

http://www.sec.gov/Archives/edgar/data/1018724/000119312512480847/d439592dfwp.htm

[Grenville]

Good, short article in Wired about Amazon Web Services and its origins. Also a little about its competitors in Google and Microsoft.

 

 

The Cult of Amazon: How a Bookseller Invented the Future of Computing

http://www.wired.com/wiredenterprise/2012/11/amazon/

 

Also this week is Amazon's Web Service Conference where you can sign up for the live feeds from the head of AWS, the CTO and Bezos.

[StubbleJumper]

Amazon is raising 3bln in debt for the first time in over 10 years.

 

0.65% Notes due 2015 - 750mln

1.20% Notes due 2017 - 1bln

2.50% Notes due 2022 - 1.25bln

 

http://www.sec.gov/Archives/edgar/data/1018724/000119312512480847/d439592dfwp.htm

 

 

I've never paid any attention to AMZN at all, but now my curiosity is piqued.  I always thought that AMZN consisted of a website and almost zero physical inventory, which has always been the criticism of their purported moat (ie, a website costs very little to develop and there's not much inventory, so the theory has always gone that somebody could replicate AMZN for only a modest capital investment).  What on earth do they need $3B of debt for?  I thought this was a cash machine with basically no capital requirements...

 

Just curious.

 

 

SJ

[Hoodlum]

They likely need to build more regional warehouses now as they are loosing their tax advantage for out of state shipments. 

[txlaw]

Amazon is raising 3bln in debt for the first time in over 10 years.

 

0.65% Notes due 2015 - 750mln

1.20% Notes due 2017 - 1bln

2.50% Notes due 2022 - 1.25bln

 

http://www.sec.gov/Archives/edgar/data/1018724/000119312512480847/d439592dfwp.htm

 

 

I've never paid any attention to AMZN at all, but now my curiosity is piqued.  I always thought that AMZN consisted of a website and almost zero physical inventory, which has always been the criticism of their purported moat (ie, a website costs very little to develop and there's not much inventory, so the theory has always gone that somebody could replicate AMZN for only a modest capital investment).  What on earth do they need $3B of debt for?  I thought this was a cash machine with basically no capital requirements...

 

Just curious.

 

 

SJ

 

See Grenville's post on AWS.

[Guest rimm_never_sleeps]

Amazon is raising 3bln in debt for the first time in over 10 years.

 

0.65% Notes due 2015 - 750mln

1.20% Notes due 2017 - 1bln

2.50% Notes due 2022 - 1.25bln

 

http://www.sec.gov/Archives/edgar/data/1018724/000119312512480847/d439592dfwp.htm

 

no brainer. but one question. what are the buyers of these bonds thinking?

[Guest rimm_never_sleeps]

Amazon is raising 3bln in debt for the first time in over 10 years.

 

0.65% Notes due 2015 - 750mln

1.20% Notes due 2017 - 1bln

2.50% Notes due 2022 - 1.25bln

 

http://www.sec.gov/Archives/edgar/data/1018724/000119312512480847/d439592dfwp.htm

 

 

I've never paid any attention to AMZN at all, but now my curiosity is piqued.  I always thought that AMZN consisted of a website and almost zero physical inventory, which has always been the criticism of their purported moat (ie, a website costs very little to develop and there's not much inventory, so the theory has always gone that somebody could replicate AMZN for only a modest capital investment).  What on earth do they need $3B of debt for?  I thought this was a cash machine with basically no capital requirements...

 

Just curious.

 

 

SJ

 

how would a retailer of this scale have no physical inventory? their moat is their distribution might. that means they have lots and lots of inventory. and no they don't need the $3b. but a cfo would have to be insane to not borrow at 2% when he can make over 10% on it? there is an old adage. do your borrowing when you don't need the money, not when you do.

 

 

read his tweets on $amzn

[txlaw]

Amazon is raising 3bln in debt for the first time in over 10 years.

 

0.65% Notes due 2015 - 750mln

1.20% Notes due 2017 - 1bln

2.50% Notes due 2022 - 1.25bln

 

http://www.sec.gov/Archives/edgar/data/1018724/000119312512480847/d439592dfwp.htm

 

 

I've never paid any attention to AMZN at all, but now my curiosity is piqued.  I always thought that AMZN consisted of a website and almost zero physical inventory, which has always been the criticism of their purported moat (ie, a website costs very little to develop and there's not much inventory, so the theory has always gone that somebody could replicate AMZN for only a modest capital investment).  What on earth do they need $3B of debt for?  I thought this was a cash machine with basically no capital requirements...

 

Just curious.

 

 

SJ

 

Btw, to say that somebody could replicate AMZN for only a modest capital investment is pretty crazy.  It's not just a website. 

 

AMZN is the new Costco.

[tengen]

Amazon does carry a lot of inventory but it is all hidden away in highly automated warehouses.  Check out this

. It doesn't sound like a great place to work.

[DCG]

Amazon is raising 3bln in debt for the first time in over 10 years.

 

0.65% Notes due 2015 - 750mln

1.20% Notes due 2017 - 1bln

2.50% Notes due 2022 - 1.25bln

 

http://www.sec.gov/Archives/edgar/data/1018724/000119312512480847/d439592dfwp.htm

 

 

I've never paid any attention to AMZN at all, but now my curiosity is piqued.  I always thought that AMZN consisted of a website and almost zero physical inventory, which has always been the criticism of their purported moat (ie, a website costs very little to develop and there's not much inventory, so the theory has always gone that somebody could replicate AMZN for only a modest capital investment).  What on earth do they need $3B of debt for?  I thought this was a cash machine with basically no capital requirements...

 

Just curious.

 

 

SJ

 

Huh? Amazon carry's huge amount of inventory, operates around 100 fulfillment centers around the world, has large data centers and customer service centers around the world, and has a good amount of subsidiaries.

[compoundinglife]

Amazon is raising 3bln in debt for the first time in over 10 years.

 

0.65% Notes due 2015 - 750mln

1.20% Notes due 2017 - 1bln

2.50% Notes due 2022 - 1.25bln

 

http://www.sec.gov/Archives/edgar/data/1018724/000119312512480847/d439592dfwp.htm

 

 

I've never paid any attention to AMZN at all, but now my curiosity is piqued.  I always thought that AMZN consisted of a website and almost zero physical inventory, which has always been the criticism of their purported moat (ie, a website costs very little to develop and there's not much inventory, so the theory has always gone that somebody could replicate AMZN for only a modest capital investment).  What on earth do they need $3B of debt for?  I thought this was a cash machine with basically no capital requirements...

 

Just curious.

 

 

SJ

 

Not only do they carry inventory. But they also warehouse inventory for their partners. You can start your own online store and Amazon will hold your inventory and do the order fulfillment for you. They also have some of the largest data center capacity on earth, that costs money, but they have been able to fund that so far from cash coming in the door.

 

IMO makes sense for them to get the money now when its cheap even if they don't have an immediate use for it.

[Cardboard]

They are like the old Sears catalogue years ago. Just fancier because you order on your screen, more goods are available including from other vendors and the delivery is faster. Although, Sears still made money delivering goods to their customers. These guys lose money or barely breakeven in the name of gaining market share.

 

You know, it is funny. I was watching CNBC on Friday and these guys had the most queries on Google or likely meaning the most visited online retailing site. When you are #1 in a business, would you not expect to see a profit? Do you think that Wal-Mart lost money with their online sales on Friday? It is the same excuse as with Salesforce.com. One day, they will cut expense and profits will surge. When is that one day? When do you decide to have enough market share and what will be the profit margins by then? Salesforce.com is lead by a major promoter, Amazon.com is lead by a ex-hedge fund manager. Should tell you a lot already.

 

Then they started AWS or a fairly unrelated business to them to confuse a little more the analysts. Now, there are two rapidly growing enterprises under the same roof. You can't really tell the future profitability of either one, but it has to be worth 100's of billions.

 

Regarding the new debt, $1.16 billion of it is to pay for its headquarter in Seattle.

 

Cardboard