AMZN - Amazon.com Inc.

[JAllen]

I think the general emphasis on the third-party business is correct though. 

 

 

This is by far the best business AMZN has.  It's like eBay on steroids, if you ask me, and has massive tailwinds and is growing very rapidly.  The synergies from AMZN and third-party sellers offering more items creates the virtuous cycle of more buyers === more sellers, and is awesome.

 

 

This is why AMZN generates an OCF/Tangible cash flow margin over 50%. 

 

 

Selling stuff for other people, i.e. keeping stuff in a warehouse and having a robot or human walking it 100 meters and charging a fee of 8-20% is an excellent business.  This business and first-party retail was capital light the entire last decade, 1-2% capex/sales, and will get even less so over time as AMZN becomes more automated and efficient.

 

 

Also, some items sold through AMZN that generate this commission ever touch a warehouse.  I went to sell a book the other week that I would ship and AMZN's commission was going to be half the price of the book.  Amazing.  This is why AMZN's gross margins continue to creep up, even in quarters like the last, when the ostensibly high-gross-margin AWS business cuts prices by 40%.

[Palantir]

^Hey, how do you compare the commissions on the Third Party business to the free shipping costs? Even a small margin is great, but I'm unsure of how to evaluate it.

[muscleman]

I think the general emphasis on the third-party business is correct though. 

 

 

This is by far the best business AMZN has.  It's like eBay on steroids, if you ask me, and has massive tailwinds and is growing very rapidly.  The synergies from AMZN and third-party sellers offering more items creates the virtuous cycle of more buyers === more sellers, and is awesome.

 

 

This is why AMZN generates an OCF/Tangible cash flow margin over 50%. 

 

 

Selling stuff for other people, i.e. keeping stuff in a warehouse and having a robot or human walking it 100 meters and charging a fee of 8-20% is an excellent business.  This business and first-party retail was capital light the entire last decade, 1-2% capex/sales, and will get even less so over time as AMZN becomes more automated and efficient.

 

 

Also, some items sold through AMZN that generate this commission ever touch a warehouse.  I went to sell a book the other week that I would ship and AMZN's commission was going to be half the price of the book.  Amazing.  This is why AMZN's gross margins continue to creep up, even in quarters like the last, when the ostensibly high-gross-margin AWS business cuts prices by 40%.

 

Yep.

BTW, I am a software engineer for AMZN's 3rd party group. :)

[Laxputs]

Ha! Shareholder?

 

[muscleman]

Ha! Shareholder?

 

Haven't received any restricted shares yet. I am researching on AMZN primarily to decide whether to hold or sell. :)

[Palantir]

Apparently the average return after AMZN reports earnings is 9%. Welp.

[dwy000]

Down $36 after hours.  Ouch.

 

To put it mildly - that was not a good earnings report.

[Palantir]

Pwn3d.

[KCLarkin]

AMZN could get interesting soon. If it hits $250, I might need to buy some to hedge my IBM bet.

 

[rpadebet]

Down $36 after hours.  Ouch.

 

To put it mildly - that was not a good earnings report.

 

Do we know the 1P/3P sales split? I expected reported sales growth to reduce as 3P took higher share of sales..

Hope it continues selling below these AH levels tomorrow and next week....Glad to have waited for this to come to me..

[wbr]

I've been following this for quite a while without pulling the trigger which seems to be paying off. I wouldnt be surprised if this trend continues for a while. Towards the end of the year fund managers might sell it to window dress...at some point long term holders might throw in the towel with all the newes that is perceived in a negative way.

 

In the meantime I read more and hope for lower prices.

[dwy000]

Down $36 after hours.  Ouch.

 

To put it mildly - that was not a good earnings report.

 

Do we know the 1P/3P sales split? I expected reported sales growth to reduce as 3P took higher share of sales..

Hope it continues selling below these AH levels tomorrow and next week....Glad to have waited for this to come to me..

 

They don't break those out.  But gross margins were down from 2Q (28.9% vs 30.7%) and the 3P sales should be entirely gross margin business.  Doesn't mean there's cause and effect but if the 3P share is growing you would generally see GM expanding (all other things being equal).

[kevin4u2]

Interesting chart on amazon's revenue and profits over time. 

[CorpRaider]

Maybe if their financial backers put some pressure on them they will stop ruining the businesses of all of their competitors.  ;D

[JAllen]

Maybe if their financial backers put some pressure on them they will stop ruining the businesses of all of their competitors.  ;D

 

 

Thank you. 

[JAllen]

What continues to perplex me is why nearly everyone, including conference call participants, has never read Bezos' annual letters and continues to focus on financial metrics AMZN's management does not focus on.  People just can't accept that AMZN is managed differently and doesn't care what's it's currently earning. 

 

 

That or the approach is so antithetical to nearly everyone else's it's incomprehensible.

 

 

 

 

[rpadebet]

Down $36 after hours.  Ouch.

 

To put it mildly - that was not a good earnings report.

 

Do we know the 1P/3P sales split? I expected reported sales growth to reduce as 3P took higher share of sales..

Hope it continues selling below these AH levels tomorrow and next week....Glad to have waited for this to come to me..

 

They don't break those out.  But gross margins were down from 2Q (28.9% vs 30.7%) and the 3P sales should be entirely gross margin business.  Doesn't mean there's cause and effect but if the 3P share is growing you would generally see GM expanding (all other things being equal).

 

In general I agree that higher 3P share could lead to higher gross margins.

 

This quarter they took about 170 million in inventory writedown on the fire phone. I am not an accounting expert, but I am guessing that goes through cost of sales. If that's true, it explains half of the gross margin decrease. Maybe they got lucky and actually sold some of these phones @$1 explaining the rest of the margin compression.

 

I am in no way suggesting the fire phone debacle is a one off, because we know this is how bezos does this stuff. It's part of the business model. Just trying to isolate the "normal" gross margin as much as I can

 

 

As an unrelated market sentiment observation,  it's funny reading all comments on seeking alpha about amzn... At least among that population, there seems to be consensus around how amazon is ridiculously over valued, JB is running a charity etc ... It seems to me such overwhelming consensus typically leads to contrarian investment opportunities. Even at $400 for AAPL I did not see such overwhelming negative consensus there. Just saw that on yahoo message boards :)

[JAllen]

Actually it doesn't perplex me, it fascinates me.  Human nature is what it is (I normally hate this saying, but it works here), and always will be.

[JAllen]

The Fire markdowns were in COS, yes.  $25M international, remaining N. America.

[Palantir]

^What's your take on the sales growth or are you ignoring that in favor of focusing on GM increases?

[JAllen]

It's going to fluctuate, like anything else.  It could reaccelerate at any time, like it has in the past.

 

 

What was the gross profit growth rate this quarter?  That's what I really care about - it can't be obscured by operating expenses.  My guess is it was slower.  I calculated it: 26% w/Fire, 29.5% excluding those losses.  Not bad, certainly slower.

 

 

But if you look back, you can see various multiple year periods where AMZN's sales growth reaccelerated.  Not saying it's going to happen, just that it can.  Part of the current slowing is AWS, which is growing usage at 90%, which is pretty awesome, even if you're lowering prices.  Costs for this decline too over time - 20% a year.

[Scudbucket]

What continues to perplex me is why nearly everyone, including conference call participants, has never read Bezos' annual letters and continues to focus on financial metrics AMZN's management does not focus on.  People just can't accept that AMZN is managed differently and doesn't care what's it's currently earning. 

 

 

That or the approach is so antithetical to nearly everyone else's it's incomprehensible.

 

You should be thankful.  It provides others who align with Bezos's thinking great prices.  As you are aware, I'm sure, the longer your time horizon, the better this is for you.

 

I think most people don't actually read any filings.  Most rely on journalists, CNBC, blogs, etc.  There is an incredible amount of information for those that take the time to read.  Most people are lazy, though.  Which, again, we should be thankful.

[JAllen]

I'm mostly thankful.  I guess part of me wishes other people would have my same perspective.

 

 

But anyways, Skzutak confirmed something today on the call, and that's that AWS is the 'vast majority' of other revenue.  So that's nice.

[dwy000]

Down $36 after hours.  Ouch.

 

To put it mildly - that was not a good earnings report.

 

Do we know the 1P/3P sales split? I expected reported sales growth to reduce as 3P took higher share of sales..

Hope it continues selling below these AH levels tomorrow and next week....Glad to have waited for this to come to me..

 

They don't break those out.  But gross margins were down from 2Q (28.9% vs 30.7%) and the 3P sales should be entirely gross margin business.  Doesn't mean there's cause and effect but if the 3P share is growing you would generally see GM expanding (all other things being equal).

 

In general I agree that higher 3P share could lead to higher gross margins.

 

This quarter they took about 170 million in inventory writedown on the fire phone. I am not an accounting expert, but I am guessing that goes through cost of sales. If that's true, it explains half of the gross margin decrease. Maybe they got lucky and actually sold some of these phones @$1 explaining the rest of the margin compression.

 

I am in no way suggesting the fire phone debacle is a one off, because we know this is how bezos does this stuff. It's part of the business model. Just trying to isolate the "normal" gross margin as much as I can

 

 

As an unrelated market sentiment observation,  it's funny reading all comments on seeking alpha about amzn... At least among that population, there seems to be consensus around how amazon is ridiculously over valued, JB is running a charity etc ... It seems to me such overwhelming consensus typically leads to contrarian investment opportunities. Even at $400 for AAPL I did not see such overwhelming negative consensus there. Just saw that on yahoo message boards :)

 

Inventory write off is typically taken below the operating line, not in COGS. At least that's how MSFT and others have done it.  Will need to wait and see the 10q to see if they line item it out.  Even if you put it in COGS though the margins were down from 2q.

[dwy000]

What continues to perplex me is why nearly everyone, including conference call participants, has never read Bezos' annual letters and continues to focus on financial metrics AMZN's management does not focus on.  People just can't accept that AMZN is managed differently and doesn't care what's it's currently earning. 

 

 

That or the approach is so antithetical to nearly everyone else's it's incomprehensible.

 

You should be thankful.  It provides others who align with Bezos's thinking great prices.  As you are aware, I'm sure, the longer your time horizon, the better this is for you.

 

I think most people don't actually read any filings.  Most rely on journalists, CNBC, blogs, etc.  There is an incredible amount of information for those that take the time to read.  Most people are lazy, though.  Which, again, we should be thankful.

 

This can't be surprising though. JB has a long term view but it has been over 20 years. At some point you need to generate a return for your investors.  Or at least explain how and when you plan to show a profit.  If he gave a roadmap or timeframe he would get cut a lot more slack.  But you just can't continue to show virtually no return for 20 yrs, then stonewall your investors and expect them to keep pumping up an already inflated stock. It's not surprising they are revolting. It's surprising it has taken this long.

 

Just look at it as a buying opportunity if you still believe the story. Hurts from the previous price chance to average down.