AMZN - Amazon.com Inc.

[Grenville]

http://www.cbsnews.com/video/watch/?id=50138922n

 

60 minutes piece on robots and job growth.  Shows Kiva Systems robots at work.  Kiva is owned by AMZN.

 

Thanks for posting. I finally got around to watching this today. Interesting to see how unemployment will be impacted by automation.

[ItsAValueTrap]

The fairy tale would then be ended and we should see that Bezos never created anything worthwhile, but just a brand name selling items below their true cost or one necessary to earn a reasonable return on capital.

 

I think you're crazy.  ;)

 

In general, I think that it's pretty obvious that online retailing will crush many parts of traditional retailing (though not all of it).  It's fundamentally more efficient.  Take Newegg for example... they are privately owned and have a cost advantage over bricks and mortar retailers.  They tried to go public so you can actually read their financials.

http://www.sec.gov/Archives/edgar/data/1341704/000119312509198581/ds1.htm

Online retailing in general is profitable, viable without living off of the stock market, and rapidly growing.

 

2- Amazon is special.  I presume that their scale gives them a margin advantage (e.g. reducing shipping costs by having warehouses and distribution centers everywhere).  If newegg were to start selling books and Amazon were to start selling computer parts... I would bet on Amazon winning that battle.  In categories where they overlap (e.g. dSLR cameras), I believe that Amazon is beating newegg on prices and # of reviews.

 

The ultimate winner in online retailing will likely be the company that is best at playing the economy of scale game... probably Amazon.  I don't want to short the #1 company in any field... even if the stock does goes down it's probably not worth it to short the company (may go up several times before going down, may take a very long time to collapse, may not collapse to 0, etc.).

 

Just ask an Apple employee today about stock compensation and how they feel about it.

They've seen their shares skyrocket in value over the past several years and are very happy that they have Apple shares?

 

I don't think it matters too much if you pay employees in cash or shares... one can be swapped for the other*.  If you pay employees in shares, you avoid costly underwriting fees, incentives are slightly better aligned, and many human beings hold their shares because people tend to stick to the default option (see Richard Thaler's book Nudge).

[berkshiremystery]

It's always good to have some free float on which you don't have to pay interest.

 

Amazon launches virtual currency

2013-02-06

 

Amazon, the world's largest online retailer, plans to introduce virtual currency that can be used for purchases on the Kindle Fire tablet to entice more developers to create programs for the device.

 

http://www.smh.com.au/digital-life/tablets/amazon-launches-virtual-currency-20130206-2dy4a.html

[rkbabang]

If newegg were to start selling books and Amazon were to start selling computer parts... I would bet on Amazon winning that battle.  In categories where they overlap (e.g. dSLR cameras), I believe that Amazon is beating newegg on prices and # of reviews.

 

Newegg might not sell books, but Amazon does sell computer parts and does beat Newegg on prices.  I like newegg and want them to succeed, because I like the management.  They actually fight patent trolls that most companies just roll over and pay.*

 

But whenever I shop around for computer parts I end up buying at Amazon.com because it is significantly cheaper.  I recently bought a new motherboard, processor, 16GB of RAM, a 1TB hard drive, a 120GB solid state drive, a DVD-writer, a copy of Windows8 Pro, and some other stuff as well.  And in every case I found it cheaper on Amazon.  I wouldn't want to be in any business that competes with them.

 

 

*How Newegg crushed the “shopping cart” patent and saved online retail

 

"Newegg's Chief Legal Officer Lee Cheng, it's a huge validation of the strategy the company decided to pursue back in 2007: not to settle with patent trolls. Ever.

 

"We basically took a look at this situation and said, 'This is bullshit,'" said Cheng in an interview with Ars. "We saw that if we paid off this patent holder, we'd have to pay off every patent holder this same amount. This is the first case we took all the way to trial. And now, nobody has to pay Soverain jack squat for these patents."

 

"It's actually surprising how quickly people forget what Lemelson did. [referring to Jerome Lemelson, an infamous patent troll who used so-called "submarine patents" to make billions in licensing fees.] This activity is very similar. Trolls right now "submarine" as well. They use timing, like he used timing. Then they pop up and say, "Hello, surprise! Give us your money or we will shut you down!" Screw them. Seriously, screw them. You can quote me on that."

 

[hyten1]

Just something i thought i share

 

i have been a long time amazon user (prime membership too)

 

however here are some interesting facts:

 

1. amazon prices changes all the time, its very annoying as a consumer, i know why they do it but its annoying to me, i always wonder whatever product i am looking at if the price  is good or now, there are service online that will track a products price change on amazon. the price change can be significant

 

2. overtime i have notice amazon doesn't always have the best price (for a long time i did). Now i always comparison shop between a few places and buy from whoever has the best overall price (price, shipping, service etc). I have notice recently walmart.com beat amazon in price on quite a few things, however i have only tried it on toys, household items, baby stuff recently so obviously can't say for every item.

 

but at the end of the day amazon doesn't always have the best price, surprising i have been shifting many  of my household item purchase recently to walmart.com

 

just some info

 

hy

[DCG]

We have a prime membership, so the 2-day shipping is a big reason why we shop there. Their shipping times often even exceed those expectations.

 

I live in Vermont (not exactly near a major airport or shipping hub). I ordered something on Amazon last week at around 8:00pm. The package was delivered around noon the next day. Not really sure how they pull stuff like this off, but they do.

[racemize]

They are shipping wizards.  I've done some patents for them that are amazing, and a friend of mine worked on their shipping algorithms for a few years.  They often know more about shipping centers than the carriers (e.g., they identify problems before UPS/Fed Ex does).

[ItsAValueTrap]

Newegg might not sell books, but Amazon does sell computer parts and does beat Newegg on prices.  I like newegg and want them to succeed, because I like the management.  They actually fight patent trolls that most companies just roll over and pay.*

Thanks for the comments!  I live in Canada, which is an online retailing backwater.  I can clearly see that some prices listed on amazon.ca are higher than amazon.com (e.g. Jlabs earbuds, which I bought recently).  In the US, online retailing is much more advanced (more selection, lower prices).

 

I've done some patents for them that are amazing, and a friend of mine worked on their shipping algorithms for a few years.  They often know more about shipping centers than the carriers (e.g., they identify problems before UPS/Fed Ex does).

It seems like Amazon's business might be very difficult to duplicate?  It seems like there is a lot of expertise that goes into keeping margins down... getting free advertising from your website, doing IT cheaply, having the software to manage moving your products from warehouse to warehouse, etc. etc.  And of course significant capex in having multiple warehouses/distribution centers.

 

but at the end of the day amazon doesn't always have the best price, surprising i have been shifting many  of my household item purchase recently to walmart.com

What do you think walmart's chances are of becoming the dominant online retailer? 

[hyten1]

ItsValueTrap,

 

well it depends on how you defined "dominant online retailer", walmart.com is already up there, its #4 base on this website http://www.internetretailer.com/top500/list/

 

i mean amazon.com is obviously the leader, you also get the feeling its not just a brochure website (walmart.com has more of that feel) but for norm items, everyday items (low margin) i don't care, i want the best price (price + shipping)

 

all i can say is amazon.com doesn't always have the best value (price + shipping) the price difference can be substantial.

 

i don't know how its going to play out btw walmart and amazon.

 

EDIT: But shoppers beware, amazon prices change can be significant, for example a flat screen i bought about 6mo ago, i track it for about 3 month before the price change can get upwards of $400.

 

this is actually very annoying for example, i buy in bulk the vaires toliet paper, paper towels from amazon, the price constantly changes, many time you have to switch the product from one list to another. its pretty annoying. then again prob most retailer do this. i always have to end up calculating $ per sheet of toilet paper to compare etc.

 

hy

[hyten1]

here is an example, everyones favorite book

 

http://camelcamelcamel.com/Tap-Dancing-Work-Practically-Everything/product/1591845734

 

price changes 15.95 to 18.45 within span of 1 mo

 

this is what i mean by, i never know everytime i get on amazon if the price i am seeing is the best/good price, espeically for items i don't buy very often.

 

hy

[rkbabang]

here is an example, everyones favorite book

 

http://camelcamelcamel.com/Tap-Dancing-Work-Practically-Everything/product/1591845734

 

price changes 15.95 to 18.45 within span of 1 mo

 

this is what i mean by, i never know everytime i get on amazon if the price i am seeing is the best/good price, espeically for items i don't buy very often.

 

hy

 

I know what you are saying, but if you need toilet paper today you buy the best deal you can find today.  It is of no consequence what the price was last month or next week.  Think about this statement:

 

 

"here is an example, everyones favorite stock <insert price quote>. price changes 15.95 to 18.45 within span of 1 mo. this is what i mean by, i never know everytime i log onto my broker if the price i am seeing is the best/good price, espeically for companies i don't buy very often."

 

 

 

[hyten1]

rkbabang

 

i hear ya, i guess we are just different, i would wait for the good price

 

as for things i need right away, i usually buy in bulk and i usually start checking prices before i really need it, so i have the luxury of waiting ... for sometime, obviously not forever.

 

somethings i wait for a while like the flat screen, if i bought the day i was thinking of buying vs waited for 3 months i saved over $300 :)

 

what can i say i am cheap, obviously i don't do this for everything

 

i also comparison shop, so sometimes walmart have i best value (i get it there) sometimes amzn as better value (i get it there)

 

this is almost like a sport, i wonder how much i really save at the end of the day :)

 

hy

[hyten1]

sorry i can't resist look at this tv

 

with last 1 mo, price range from 999.99 to 1400!!!

 

http://camelcamelcamel.com/Samsung-UN60EH6000-60-Inch-1080p-120Hz/product/B0074FGWJC

 

[rkbabang]

rkbabang

 

i hear ya, i guess we are just different, i would wait for the good price

 

We are not that different at all, I sometimes spend months researching a purchase and waiting for a price.  Just not usually on toilet paper.

My point was that I expect prices on any property to shift back and forth as supply and demand shift.  This is true just as much for toilet paper as it is for real estate or stocks.  I'd rather Amazon always quote me their best possible price rather than stick with a higher one.

 

[hyten1]

rkbabang,

 

i hear ya, agree.

 

hy

[rkbabang]

Amazon.com is creating a digital currency.  It looks like it will be only for Kindle apps at first, but it is interesting that they are calling them "Amazon Coins" not "Kindle Coins" so they may have larger plans.

 

Introducing Amazon Coins: A New Virtual Currency for Kindle Fire

 

[JRH]

Amazon.com is creating a digital currency.  It looks like it will be only for Kindle apps at first, but it is interesting that they are calling them "Amazon Coins" not "Kindle Coins" so they may have larger plans.

 

Introducing Amazon Coins: A New Virtual Currency for Kindle Fire

 

They should announce a set supply and commit to growing the "Amazon Coin base" at a steady 3% a year, and gold would have some new competition for a store of purchasing power. ;)

 

I'll refrain from making any jokes about Amazon placing full-reserve banking rules on the Amazon Coin, but anyone else can jump in if they want to.

[Guest wellmont]

is this a way to confuse customers by getting them to purchase in virtual currency forcing them to translate back to real dollars (which of course they won't do). I submit that it's also a way to capture float. unless someone can explain that it's not?

[rkbabang]

is this a way to confuse customers by getting them to purchase in virtual currency forcing them to translate back to real dollars (which of course they won't do). I submit that it's also a way to capture float. unless someone can explain that it's not?

 

I'm sure you are correct.  I wonder though in addition to that if they also plan on competing with paypal someday.  Allowing exchange of these outside of Amazon.com.  Just speculation.  Of course if they want to keep the number of Amazon Coins to a known quantity backed by something of value (books?) and let the exchange rate with other currencies float in the market to compete with bitcoins or something like that, that would be interesting as well.  I've never had a position in AMZN, but I find it a fascinating company to watch.

[JRH]

is this a way to confuse customers by getting them to purchase in virtual currency forcing them to translate back to real dollars (which of course they won't do). I submit that it's also a way to capture float. unless someone can explain that it's not?

 

I'm sure you are correct.  I wonder though in addition to that if they also plan on competing with paypal someday.  Allowing exchange of these outside of Amazon.com.  Just speculation.  Of course if they want to keep the number of Amazon Coins to a known quantity backed by something of value (books?) and let the exchange rate with other currencies float in the market to compete with bitcoins or something like that, that would be interesting as well.  I've never had a position in AMZN, but I find it a fascinating company to watch.

 

I'm 99% sure they would fix the price (exchange rate) and let the quantity float, rather than the opposite.  Far more friendly for users and easier to understand.  Having said that, it is interesting to consider the possibility of a new floating currency (fixed quantity, floating price) being introduced by Amazon.  One of the key characteristics a currency has to have to become accepted is to be easily exchangeable for things people commonly want or need.  I'd argue that Amazon (along with eBay and maybe Walmart?) are in as good a position to do that as anyone in the consumer market by integrating the exchange of currency back to dollars and the purchase of X good for delivery into a single mouse click.  The clicker doesn't even have to know the intermediate step is occurring.  Maybe all they know is that the money they were holding in Amazon Coins held its value better than their checking account.  And heck, maybe the intermediate step never even occurs if the seller (whether it be Amazon or someone else) would rather just get paid in Amazon Coins.

 

All playful conjecture.

[Cardboard]

Canadian Tire is giving you a percentage of your spending with their own money if you pay cash! So they have their own money in circulation which is exchangeable in the store. This has been going on for decades. Why is it that you guys are so in awe with whatever Amazon is doing? Is it because you guys are working in the tech industry? I simply don't get it.

 

Moreover, there seems to be a conviction that Amazon will kill everyone in retail and become one day the only shopping place. What is interesting, is that after something like 16 years of massive price cuts and the move away from traditional books (which a old fashioned guy like me who is not that old still prefers than pages on a screen), Barnes and Nobles, Indigo and most others are still alive and selling books in brick and mortar stores. What is happening is that no one is now making any money including Amazon. So the industry is essentially worthless to investors. So how can they possibly steal all sales from a Wal-Mart, Costco, Target, Kohl's, Sears? By rendering the entire retail industry unprofitable and worthless including their very own? 

 

Honestly, I shop at Amazon once in a while, but it has been mainly to buy small goods such as watches and books. I also find it useful to ship a gift directly to a relative or friend living away. That is about it. Prices are good, I will give you that, but I still prefer a traditional shopping experience for most of my goods. Now as an investor, what matters is free cash flow as Mr. Bezos keeps pointing out. However, he has never delivered especially not for the kind of valuation being attributed.

 

The problem with Amazon is that they are selling too low to make a decent profit or to attain a proper return on capital, which rendered impossible the validation that the original business model of having only a few very high tech warehouses shipping across the country would work. Then once it became clear that they would lose their no sales tax advantage and as a form of settlement, Mr. Bezos entered into a massive expansion plan of having warehouses everywhere to then reduce shipping cost and offer same day shipping. Once again, this model has not proven its worth yet and may never since it is massively different than the original business model.

 

Inventory management becomes much more complex and costly. You need to have the right goods, at the right place, at the right time in a much larger number of facilities which has to increase overall shipping costs from vendors to these warehouses: there is a difference between a truckload of some goods to Seattle vs 80 less than truck loads to warehouses across the country. Also, the number of employees, utility bills, insurance, municipal tax, conveyors/robots maintenance, other repairs, real estate ownership make costs explode. Moreover same day shipping while closer to the customer due to the warehouse location might not integrate so well with UPS and others and be more cost effective on a single shipment basis.

 

I imagine that they have some top notch logistical experts at Amazon figuring this out (but you can be sure that the analysts out there have no clue about this). Moreover, it would not be the first time in human history that a strong leader influenced significantly decisions on how to do things. I have seen enough financial analysis and sourcing studies to know that numbers can be "tweaked" to make one option look better than the other especially when they are close. So if the leader thinks that same day shipping is a must for consumers, you can be assured that it influences the way people think and analyze numbers despite their best ability and integrity. Here we are talking about tiny profit margins. A slight change in the logistical assumptions can a have a tremendous impact on the long term profitability of the enterprise especially when you lock yourself into a vastly larger number of locations than you used to manage.

 

So the reality is that so far we have seen sales grow because of an advantageous value proposition for consumers, however profits never materialized to justify the valuation. Profits have actually gotten worse which would tend to validate what I am mentioning regarding the revised business plan. Moreover, lately sales have not grown as fast as analysts and others had been expecting despite a very large expansion. It seems improbable that selling prices will be reduced further to entice more sales growth. So IMO, the moment of truth is coming since they are now selling $62 billion of goods a year and can't change much further the business model other than introducing brick and mortar stores!

 

Cardboard 

[rmitz]

Moreover, there seems to be a conviction that Amazon will kill everyone in retail and become one day the only shopping place. What is interesting, is that after something like 16 years of massive price cuts and the move away from traditional books (which a old fashioned guy like me who is not that old still prefers than pages on a screen), Barnes and Nobles, Indigo and most others are still alive and selling books in brick and mortar stores. What is happening is that no one is now making any money including Amazon. So the industry is essentially worthless to investors. So how can they possibly steal all sales from a Wal-Mart, Costco, Target, Kohl's, Sears? By rendering the entire retail industry unprofitable and worthless including their very own?

 

That's kind of how capitalism is supposed to work...

 

I love the Amazon service, as someone who doesn't drive to work or need a car regularly, it's far more convenient to have things delivered cheaply if I can't walk to my local stores and get them.  Likewise, not having to enter all my information in over and over again on different websites has a value in time and security.

 

None of that makes Amazon a good investment, which is an entirely different issue.

[txlaw]

I have to say that the most perturbing thing about AMZN is the repeated stories I read about how crappy it is to work in their distribution centers:

 

http://www.ft.com/intl/cms/s/2/ed6a985c-70bd-11e2-85d0-00144feab49a.html#slide0

[bargainman]

I imagine that they have some top notch logistical experts at Amazon figuring this out (but you can be sure that the analysts out there have no clue about this). Moreover, it would not be the first time in human history that a strong leader influenced significantly decisions on how to do things. I have seen enough financial analysis and sourcing studies to know that numbers can be "tweaked" to make one option look better than the other especially when they are close. So if the leader thinks that same day shipping is a must for consumers, you can be assured that it influences the way people think and analyze numbers despite their best ability and integrity. Here we are talking about tiny profit margins. A slight change in the logistical assumptions can a have a tremendous impact on the long term profitability of the enterprise especially when you lock yourself into a vastly larger number of locations than you used to manage.

 

So the reality is that so far we have seen sales grow because of an advantageous value proposition for consumers, however profits never materialized to justify the valuation. Profits have actually gotten worse which would tend to validate what I am mentioning regarding the revised business plan. Moreover, lately sales have not grown as fast as analysts and others had been expecting despite a very large expansion. It seems improbable that selling prices will be reduced further to entice more sales growth. So IMO, the moment of truth is coming since they are now selling $62 billion of goods a year and can't change much further the business model other than introducing brick and mortar stores!

 

Cardboard

 

Cardboard, I'm just surprised you would short a company with this sort of unending ability to make wallstreet believe its story.  Regardless of whether it's overvalued or not, it's a pretty great company.  Are you protected with some OTM calls to ensure you don't get killed if they keep going up?  How large of a position is this for you?  I imagine it must be quite small considering that in another thread you said you had a 99% return last year...

[LC]

Cardboard, I'm just surprised you would short a company with this sort of unending ability to make wallstreet believe its story.  Regardless of whether it's overvalued or not, it's a pretty great company.  Are you protected with some OTM calls to ensure you don't get killed if they keep going up?  How large of a position is this for you?  I imagine it must be quite small considering that in another thread you said you had a 99% return last year...

I won't touch the hedging discussion but I will say that Amazon is a great company for customers due to the value proposition as Cardboard said. It's a great company for employees (well, those who don't work in distribution centers). Can you imagine better resume padding than "logistics manager - amazon.com"? I think not. But it's a terrible company for shareholders. Simply put, the margins suck and there's not enough volume in the country to justify it!