Hoodlum Posted November 27, 2012 Share Posted November 27, 2012 In Canada online retailers ship most of their product directly from a distributor's warehouse with the retailers packing slip. It never enters a retailers warehouse. This is a trend that seems to be increasing. Most online retailers are also using a 3rd party for processing orders. CommerceHub seems to be the most popular in Canada. Link to comment Share on other sites More sharing options...
compoundinglife Posted November 27, 2012 Share Posted November 27, 2012 In Canada online retailers ship most of their product directly from a distributor's warehouse with the retailers packing slip. It never enters a retailers warehouse. This is a trend that seems to be increasing. Most online retailers are also using a 3rd party for processing orders. CommerceHub seems to be the most popular in Canada. Yup. This is commonly referred to as "drop shipping". I had an online retail site in a niche business for a while and used various distributors/manufacturers for drop shipping items that we did not want to keep in inventory. Some of the distributors we used for drop shipping in turn used a warehouse or logistics management company to outsource fulfillment and shipping from the warehouse. Link to comment Share on other sites More sharing options...
StubbleJumper Posted November 27, 2012 Share Posted November 27, 2012 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 Obviously some level inventory is required, but I always had a fuzzy understanding that the business model was predicated on a very high inventory turnover ratio... When you say that they can borrow at 2% and make more than 10%, what investment did you have in mind for the $3B? Are you suggesting that AMZN was inappropriately scaled and this will increase the volume of their operations, or are you suggesting that this will change their expense profile? I must confess that I've never looked at it simply because it was priced so high for so long... Link to comment Share on other sites More sharing options...
Guest rimm_never_sleeps Posted November 27, 2012 Share Posted November 27, 2012 I am saying they will use that $3b at an after tax cost of less than 2% and earn way more than that by investing the capital in the business. that's basic EVA stuff. Even if they just bought prime real estate with it they would earn over 2%. it's a no brainer, which is why most every blue chip company out there is borrowing money now. Amazon is a growth company in it's prime---it will find a use for this capital. When you can borrow at 2% you do it. It's unprecedented the rates blue chip companies are borrowing for. borrowing $3b at 2% gives them the flexibility to buy rather than lease. that's just one example. Link to comment Share on other sites More sharing options...
StubbleJumper Posted November 27, 2012 Share Posted November 27, 2012 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. Agreed, it's more than a website. But the argument has always gone that the market cap drastically exceeds tangible assets, implying that if somebody were given a fraction of the $100b market cap he could build a website buy some warehouse facilities, procure some inventory and effectively establish a similarly scaled operation. Of course, the intangible assets are the more significant element and are more difficult to replicate. SJ Link to comment Share on other sites More sharing options...
StubbleJumper Posted November 27, 2012 Share Posted November 27, 2012 Regarding the new debt, $1.16 billion of it is to pay for its headquarter in Seattle. Okay, that makes sense. That leaves a little less than $2b to fund organic growth....I guess that'll be for some more warehouse facilities.... Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted November 28, 2012 Share Posted November 28, 2012 Their plan to buy their own headquarters seems a little crazy... $644/sqft seems very overpriced. The world's largest Internet retailer plans to buy a complex of 11 buildings in the trendy South Lake Union area, comprising 1.8 million square feet of office space, for $1.16 billion from Microsoft Corp co-founder Paul Allen's investment firm. Based on the value of the deal, Amazon is paying the highest ever price for an office building over 100,000 square feet in Seattle at around $644 per square foot. That is more than double the average rate of $308 per square foot for the city's office space, according to Real Capital Analytics. http://www.huffingtonpost.com/2012/10/05/amazon-headquarters-116-billion_n_1944202.html On the other hand, isn't it obvious that online shopping will play a much larger role in the future? I shop at Amazon (and other online retailers... eBay etc. etc.). So do many people I know. Unless they are extremely incompetent or that there is fraud going on (though you'd figure they would raise equity), you'd figure that Amazon's economics are decent. They might be bleeding the short-term to drive adoption of the Kindle? Link to comment Share on other sites More sharing options...
txlaw Posted November 28, 2012 Share Posted November 28, 2012 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. Agreed, it's more than a website. But the argument has always gone that the market cap drastically exceeds tangible assets, implying that if somebody were given a fraction of the $100b market cap he could build a website buy some warehouse facilities, procure some inventory and effectively establish a similarly scaled operation. Of course, the intangible assets are the more significant element and are more difficult to replicate. SJ Let's set the market cap aside, as that is not particularly useful for determining how the business is actually set up or how a new entrant would practically be able to attack the AMZN moat, which results from both tangible and intangible assets, and also results from structural advantages that allow AMZN to be a low cost provider of physical and digital goods (21st century retail business model, brand/customer relationships and, most importantly, scale). I personally think that AMZN is at nosebleed valuations, and I doubt that any new entrant could ever get seed money to try to attack an AMZN at the same valuation as AMZN. Now, existing companies, such as WMT, could potentially use their resources to attack AMZN's moat. The cash that is being borrowed by AMZN is fungible with the cash they generate through ops, and the proceeds will be used "for general corporate purposes." So while it is true that AMZN is buying a new headquarters building, the real question is whether incoming cash (whether through debt issuance or CFFO) is being deployed such that it generates a return on investment or protects current level of profits (economic earnings at AMZN are obscured by growth investment). Most likely possible uses for cash are both for growth and maintenance capex -- it's hard to separate the two in AMZN's case because of the potential cannibalization of physical good sales by digital goods sales (e.g., book and media sales): -New warehouses and fulfillment centers to ship physical product, perhaps in the US, but just as likely in international markets. -Robots to further automate their distribution -Computing/storage hardware and datacenter facilities for the utility computing biz (Amazon AWS is the infrastructure on which many people's Web services run -- e.g., Netflix, Dropbox), content sale/rental biz, etc. -Acquisitions? (Does anyone have good data on what ROIs resulted from Zappos or Quidsi deals?) Link to comment Share on other sites More sharing options...
Grenville Posted November 28, 2012 Share Posted November 28, 2012 What on earth do they need $3B of debt for? I thought this was a cash machine with basically no capital requirements... Here are some of my thoughts for what it's worth on where they might use the capital. + 1.16bln for the HQ that they are buying from Vulcan. It's a set of buildings in South Lake Union that were built in the last three years. They are all next to each other. Bezos answered a question at the annual meeting (it was quoted in something I read) that they decided to buy the buildings because it was getting harder to find space so close together for the growing rank of employees. + I remember seeing a figure somewhere that each fulfillment center is ~100mln + They are opening two more fulfillment centers in California (Tracy & Patterson both near SF) in addition to the recently opened one in San Bernardino http://www.latimes.com/business/money/la-fi-mo-amazon-opening-distribution-center-20121127,0,5209399.story + Small business loans to FBA merchants + More data centers (recently opened an availability zone in Australia) + Acquisitions (Brazil online site maybe) + Dry powder for a share buyback (960mln in Q1'2012 at ~ $180/share) Amazon is in expansion mode along a number of fronts. The retail business is expanding both here and abroad. The content creation and distribution business is growing with both Kindle readers and Kindle fires which are top selling items. Amazon web services continues to expand across the globe. The computing power grows to support Amazon's retail and content business while supporting 3rd party businesses. I've also attached the employee numbers and they are growing much faster than one would expect for supporting just the retail business. I don't think Amazon just hires people because they can. They have faced tough times in the past and they seem to be stingy with their spending. Also I don't think they are raising debt because it's cheap. If they were, they could raise much more than 3bln. Also in 2011 they had about 5bln in inventory at year end versus 42bln in product sales. Link to comment Share on other sites More sharing options...
Grenville Posted November 28, 2012 Share Posted November 28, 2012 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. Thanks for the link on the bad conditions in one of the warehouses. I hope that's been fixed. Doesn't make sense to have that situation both for employees or employers. Link to comment Share on other sites More sharing options...
Liberty Posted November 28, 2012 Share Posted November 28, 2012 New amazon product: http://aws.amazon.com/redshift/ Link to comment Share on other sites More sharing options...
compoundinglife Posted November 28, 2012 Share Posted November 28, 2012 From the AWS conference going in Vegas right now: http://venturebeat.com/2012/11/28/netflix-ceo-reed-hastings-we-want-to-be-the-biggest-business-in-the-world-100-on-amazon-web-services/ Link to comment Share on other sites More sharing options...
Guest rimm_never_sleeps Posted November 28, 2012 Share Posted November 28, 2012 From the AWS conference going in Vegas right now: http://venturebeat.com/2012/11/28/netflix-ceo-reed-hastings-we-want-to-be-the-biggest-business-in-the-world-100-on-amazon-web-services/ I believe this is why he is no longer on the msft board. Link to comment Share on other sites More sharing options...
Grenville Posted November 29, 2012 Share Posted November 29, 2012 Here is a link to Andy Jassy, head of AWS, keynote presentation at the first AWS Re:Invent Conference today. I encourage anyone who doesn't know much about AWS or who wants to know more to watch the presentation. Interesting parts: + Good conversation with Reed Hastings (36min mark) + Dropped pricing on S3 storage service 25% + Computing is shifting to a utility model + The last comment on how the Obama campaign utilized AWS is also interesting (1hr22min mark) Link to comment Share on other sites More sharing options...
Guest valueInv Posted November 30, 2012 Share Posted November 30, 2012 So we got two companies who want to build empires, don't care about profits and a lot of cash: http://venturebeat.com/2012/11/29/google-amazon-cloud-pricing/ This is going to end well. Link to comment Share on other sites More sharing options...
rmitz Posted November 30, 2012 Share Posted November 30, 2012 So we got two companies who want to build empires, don't care about profits and a lot of cash: http://venturebeat.com/2012/11/29/google-amazon-cloud-pricing/ This is going to end well. The big effect of a price war will be to influence customers to go off of their own infrastructure faster...when the rates eventually go up they will have pain. Link to comment Share on other sites More sharing options...
Grenville Posted November 30, 2012 Share Posted November 30, 2012 Video of Jeff Bezos from the conference. Nothing groundbreaking. I enjoyed the talk after the first 5-10min Interesting topics covered: + Running a low margin business + Use of Japanese lean principles in the fulfillment centers (some good anecdotes) + Long term thinking Good summary article of the topics covered: http://news.cnet.com/8301-1001_3-57556330-92/bezos-amazon-web-services-is-lean-manufacturing-for-it/ Link to comment Share on other sites More sharing options...
txlaw Posted December 1, 2012 Share Posted December 1, 2012 Article about the views of AWS Chief Data Scientist. http://gigaom.com/data/why-amazon-thinks-big-data-was-made-for-the-cloud/ Link to comment Share on other sites More sharing options...
txlaw Posted December 1, 2012 Share Posted December 1, 2012 Pretty interesting. GOOG just bought a company based out of Waterloo that provides temporary lockers for deliveries of online purchases. http://blog.bufferbox.com/ Link to comment Share on other sites More sharing options...
Guest rimm_never_sleeps Posted December 1, 2012 Share Posted December 1, 2012 very small purchase, probably to improve delivery service options at their play store for the increasing number of devices they will be selling. Link to comment Share on other sites More sharing options...
Grenville Posted December 2, 2012 Share Posted December 2, 2012 How Amazon Followed Google Into the World of Secret Servers http://www.wired.com/wiredenterprise/2012/11/amazon-google-secret-servers/ Article on how many big players are cutting out middlemen for servers and switches. They are building them direct in Asia and ordering chips directly from Intel and others. The article also quotes Chris Pinkham, who built EC2 in its early days in South Africa. Link to comment Share on other sites More sharing options...
Grenville Posted December 3, 2012 Share Posted December 3, 2012 Good article on Amazon's distribution center growth and strategy. Also talks about the limited use of Kiva robots for now. Amazon Plans Carefully Its Distribution Capacity Growth http://logisticsviewpoints.com/2012/12/03/amazon-plans-carefully-its-distribution-capacity-growth/ "Since a highly-automated warehouse would take months longer to complete, Amazon uses warehouse automation sparingly to preserve scalability." Another article on Kiva: Amazon's Robotic Future: A Work in Progress http://www.businessweek.com/articles/2012-11-30/amazons-robotic-future-a-work-in-progress Link to comment Share on other sites More sharing options...
stylized_fact Posted December 4, 2012 Share Posted December 4, 2012 Good article on Amazon's distribution center growth and strategy. Also talks about the limited use of Kiva robots for now. Amazon Plans Carefully Its Distribution Capacity Growth http://logisticsviewpoints.com/2012/12/03/amazon-plans-carefully-its-distribution-capacity-growth/ "Since a highly-automated warehouse would take months longer to complete, Amazon uses warehouse automation sparingly to preserve scalability." Another article on Kiva: Amazon's Robotic Future: A Work in Progress http://www.businessweek.com/articles/2012-11-30/amazons-robotic-future-a-work-in-progress I'm not short, nor do I plan to be, but if there's anything I consider to be questionable about Amazon as an investment, it's the risk that their management is growing increasingly out of touch by pursuing "pioneering" developments (R&D science projects) while competitors like Walmart mimic whatever is useful in Amazon's innovation, and Google engages in an arms race with them in cloud computing. Bezos loves to tout his customer focus, but it's clear that what's most important to this guy is advanced technology. His snobbery seems likely to prevent them from ever succeeding with a consumer device. Link to comment Share on other sites More sharing options...
txlaw Posted December 5, 2012 Share Posted December 5, 2012 Here is a link to Andy Jassy, head of AWS, keynote presentation at the first AWS Re:Invent Conference today. I encourage anyone who doesn't know much about AWS or who wants to know more to watch the presentation. Interesting parts: + Good conversation with Reed Hastings (36min mark) + Dropped pricing on S3 storage service 25% + Computing is shifting to a utility model + The last comment on how the Obama campaign utilized AWS is also interesting (1hr22min mark) I started watching last night and hope to finish over the course of the week. So far, it's even better than an Apple keynote! The JPL/NASA presentation was pretty badass. I'm really surprised at how good AMZN has become at marketing. Still wouldn't buy (or short) it. Link to comment Share on other sites More sharing options...
bargainman Posted December 8, 2012 Share Posted December 8, 2012 Really good article on Bezos. Good insight into how he thinks. It's from a few weeks ago. http://management.fortune.cnn.com/2012/11/16/jeff-bezos-amazon/?iid=obinsite Link to comment Share on other sites More sharing options...
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