AMZN - Amazon.com Inc.

[dwy000]

Let's be optimists. Assume that Amazon reinvests all earnings. Amazon will grow 20% per year for 20 years. At the end of 20 years, net margins will be 7% (double Walmart's peak margins). The company will be worth 20x earnings.

 

In 2035, Amazon has $4 trillion in revenue. $287 billion in earnings. And a market cap of $5.7 trillion. Shareholders? They get 14% per annum (assuming 1% annual dilution).

 

Or, you could say that $AMZN is worth $1485 per share (10% discount rate).

 

 

Maybe its just me, but I don't think there are many large companies that you could do a discounted cash flow analysis at a 10% rate for 20 years and expect the stock to still look cheap, especially in this current market.

 

not entirely sure that's true.  Anything trading at 10x earnings should have a 10% discount rate to get to today's price even without growth.  If you add in growth then the multiple can be higher.  I think the issue comes in the assumption of full reinvestment of earnings and relying entirely upon stock price to get there.  most companies with $300bn in market cap have pretty decent earnings and a dividend.

[KCLarkin]

Maybe its just me, but I don't think there are many large companies that you could do a discounted cash flow analysis at a 10% rate for 20 years and expect the stock to still look cheap, especially in this current market.

 

With current interest rates, a blue chip investor should be happy with 6-8% annual returns. Amazon is not a blue chip. But, if you are happy with 8%, you can drop par to 16% revenue growth.

[vinod1]

Up until a year-two ago, I was in the same camp as KCLarkin and others - I saw Amzn as an online retailer, albeit with huge technological advantage, running on 0.5% margin, and notorious for erratic quarterly earnings and maybe without shareholder focus. So I viewed it as risky and overpriced, with price dependent on the latest quaterly earnings which I could not predict. So I stayed away.

 

To be fair, that's not really my opinion on Amazon. I have no opinion on whether Amazon is overpriced. But I don't like the risk/reward.

 

Let's be optimists. Assume that Amazon reinvests all earnings. Amazon will grow 20% per year for 20 years. At the end of 20 years, net margins will be 7% (double Walmart's peak margins). The company will be worth 20x earnings.

 

In 2035, Amazon has $4 trillion in revenue. $287 billion in earnings. And a market cap of $5.7 trillion. Shareholders? They get 14% per annum (assuming 1% annual dilution).

 

Or, you could say that $AMZN is worth $1485 per share (10% discount rate).

 

--

 

Now, let's be more conservative. Assume 15% growth for 20 years. 3.5% margins (Walmart's peak margins). 15x PE.

 

Under these conservative assumptions, you get 4% CAGR. $AMZN is worth $237.80.

 

--

 

Now, let's be pessimistic. Assume 10% growth for 20 years. 3.5% margins (Walmart's peak margins). 15x PE.

 

Under these pessimistic assumptions, you get -0.6% CAGR. $AMZN is worth $97.75.

 

--

 

So Amazon is worth $98 to $1485 per share. It's not overpriced. But the valuation risk is extreme.

 

A knowledgeable and thoughtful poster had earlier in the thread said:

 

Good management can create value beyond our current imagination.

 

I was shocked reading this, but this might reflect the thinking of most Amazon investors. How do you capitalize value of something like that?

 

It reminds me of "a company for carrying out an undertaking of great advantage, but nobody to know what it is"

 

https://web.archive.org/web/20140106143016/http://www.thesouthseabubble.com/

 

Vinod

[rkbabang]

Up until a year-two ago, I was in the same camp as KCLarkin and others - I saw Amzn as an online retailer, albeit with huge technological advantage, running on 0.5% margin, and notorious for erratic quarterly earnings and maybe without shareholder focus. So I viewed it as risky and overpriced, with price dependent on the latest quaterly earnings which I could not predict. So I stayed away.

 

To be fair, that's not really my opinion on Amazon. I have no opinion on whether Amazon is overpriced. But I don't like the risk/reward.

 

Let's be optimists. Assume that Amazon reinvests all earnings. Amazon will grow 20% per year for 20 years. At the end of 20 years, net margins will be 7% (double Walmart's peak margins). The company will be worth 20x earnings.

 

In 2035, Amazon has $4 trillion in revenue. $287 billion in earnings. And a market cap of $5.7 trillion. Shareholders? They get 14% per annum (assuming 1% annual dilution).

 

Or, you could say that $AMZN is worth $1485 per share (10% discount rate).

 

--

 

Now, let's be more conservative. Assume 15% growth for 20 years. 3.5% margins (Walmart's peak margins). 15x PE.

 

Under these conservative assumptions, you get 4% CAGR. $AMZN is worth $237.80.

 

--

 

Now, let's be pessimistic. Assume 10% growth for 20 years. 3.5% margins (Walmart's peak margins). 15x PE.

 

Under these pessimistic assumptions, you get -0.6% CAGR. $AMZN is worth $97.75.

 

--

 

So Amazon is worth $98 to $1485 per share. It's not overpriced. But the valuation risk is extreme.

 

A knowledgeable and thoughtful poster had earlier in the thread said:

 

Good management can create value beyond our current imagination.

 

I was shocked reading this, but this might reflect the thinking of most Amazon investors. How do you capitalize value of something like that?

 

It reminds me of "a company for carrying out an undertaking of great advantage, but nobody to know what it is"

 

https://web.archive.org/web/20140106143016/http://www.thesouthseabubble.com/

 

Vinod

 

 

And yet the statement is undeniably true.  Who can dispute that great management (whether it is Jeff Bezos or Warren Buffet) has the ability to create massive amounts of value which could not have been predicted beforehand by outside investors?

 

[Liberty]

Amazon getting into student loans with Wells Fargo:

 

http://www.wsj.com/articles/amazon-tip-toes-into-banking-business-1469093403

 

 

The online retailer has entered into a partnership with San Francisco lender Wells Fargo & Co. in which the bank’s student-lending arm will offer interest-rate discounts to select Amazon shoppers. […]

 

Wells Fargo, the largest U.S. bank by market value and the second-largest private student lender by origination volume, will shave a half a percentage point off the interest rate on student loans it extends to applicants who are members of Amazon’s Prime Student. The subscription-based service charges $49 a year, half the cost of Amazon Prime, and offers free two-day shipping and unlimited instant streaming of movies, among other perks.

 

If you're a student, looks like that half a percent discount should more than pay for a Prime membership...

[Liberty]

http://www.bloomberg.com/news/articles/2016-07-21/bezos-topples-buffett-as-world-s-third-richest-on-amazon-rise

 

Jeff Bezos just snuck past Warren Buffett to become the third-richest person on Earth.

The Amazon.com Inc. founder’s net worth was $65.05 billion Thursday, topping Buffett by $32 million on the Bloomberg Billionaires Index. With the gain, Bezos’s wealth has increased by $5.4 billion this year, marking a resurgence after it fell to as low as $43 billion in February amid turbulent global markets.

[Liberty]

Q2 is out:

 

http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2189739

 

Operating cash flow increased 42% to $12.7 billion for the trailing twelve months, compared with $9.0 billion for the trailing twelve months ended June 30, 2015. Free cash flow increased to $7.3 billion for the trailing twelve months, compared with $4.4 billion for the trailing twelve months ended June 30, 2015. Free cash flow less lease principal repayments increased to $3.9 billion for the trailing twelve months, compared with $2.4 billion for the trailing twelve months ended June 30, 2015. Free cash flow less finance lease principal repayments and assets acquired under capital leases increased to $2.5 billion for the trailing twelve months, compared with an outflow of $492 million for the trailing twelve months ended June 30, 2015.

 

Common shares outstanding plus shares underlying stock-based awards totaled 495 million on June 30, 2016, compared with 488 million one year ago.

 

Net sales increased 31% to $30.4 billion in the second quarter, compared with $23.2 billion in second quarter 2015. The favorable impact from year-over-year changes in foreign exchange rates throughout the quarter on net sales was $166 million.

 

Operating income was $1.3 billion in the second quarter, compared with $464 million in second quarter 2015.

 

Net income was $857 million in the second quarter, or $1.78 per diluted share, compared with $92 million, or $0.19 per diluted share, in second quarter 2015.

[Ballinvarosig Investors]

After hours trading after Amazon announce earnings is always fun. Started down, went up, then down again  :o

[JSArbitrage]

  Up until a year-two ago, I was in the same camp as KCLarkin and others - I saw Amzn as an online retailer, albeit with huge technological advantage, running on 0.5% margin, and notorious for erratic quarterly earnings and maybe without shareholder focus. So I viewed it as risky and overpriced, with price dependent on the latest quaterly earnings which I could not predict. So I stayed away.

 

  With AWS, my view changed. AWS revenue is now 7bn (out of the total of ~100bn) and growing. I see the potential revenue of AWS in tens of billions over the next five years. Secondly, a retailer which can develop such a significant revenue stream in a totally unrelated field certainly has excellent execution capabilities and vision. So I decided not to attempt to guess what they will be good at in five-ten years, I just bought the stock and let's see how it goes. The continued development of the same-day shipping capability is also interesting. So they will have a good story to sell for at least several years, I would say.

 

  Overpriced as heck, for sure. But I just closed my eyes and bought. Now, I need to work on my entry points - I think I tend to buy at tops, as opposed to bottoms.

 

While I would never touch AMZN with a 50 foot pole from an investing perspective, this is why the stock is so highly valued. 

 

Bezos has made a very interesting pivot with AMZN: the model is no longer the retailer.  Instead, he offers the technology they build out for the retailer to other companies.  AWS was created because Bezos realized AMZN was actually one of the the world's most sophisticated development and implementation platforms.  So he made a requirement that all AMZN internal development tools had to be made so outsiders could use them.  They were already building them for the AMZN retailer: charging others for it's use was revenue straight to the bottom-line (give or take.) 

 

Remember - AMZN is, by far, the most advanced logistics and robotics company in the world right now.  Their warehouse automation and shipping process is best-in-class.  It's unreal.  How long until AMZN starts offering Logistics-As-A-Service?  I wouldn't be surprised to see a headline tomorrow that AMZN has signed an agreement with Target or Sears to manage all of their online retailer logistics in AMZN warehouses.  AMZN already makes these investments for AMZN's online retailer so the marginal cost to manage Sear's logistics is almost zero.  And they'd be able to charge a TON for it. 

 

AMZN is definitely in the too hard (gambling) pile from an investment perspective but it's hard not to admire what Bezos is doing.  I think he's the business genius of my generation (more than Musk or Page/Brin.)

[Oreo]

On logistics-as-a-service: that day is already here, IMO.

Amazon Fulfilment is a force. I had interesting conversations with up-and-coming entrepreneurs (and exporters) who are increasingly shifting their distribution to Amazon.

 

[winjitsu]

http://www.nytimes.com/2016/08/04/business/dealbook/walmart-said-to-be-in-talks-to-acquire-jetcom.html?ref=dealbook

 

I mentioned Jet a while back. They raised over $500mm to take on Amazon, founded by former Diapers.com founders. Basically re-affirms what we all know -- Amazon has a huge moat in retail.

[Jurgis]

http://www.nytimes.com/2016/08/04/business/dealbook/walmart-said-to-be-in-talks-to-acquire-jetcom.html?ref=dealbook

 

I mentioned Jet a while back. They raised over $500mm to take on Amazon, founded by former Diapers.com founders. Basically re-affirms what we all know -- Amazon has a huge moat in retail.

 

I used Jet.com when it came out and gave $15 (?) coupon for the first purchase. Never used them afterwards. I was tempted once or twice for groceries where Amazon third-party prices are 2x-3x supermarket, but their search function was atrocious, so I gave up. They are still sending me crap email. Should unsubscribe.

 

I use Walmart.com if/when I need groceries that are overpriced at Amazon and not available in local stores.

[rkbabang]

http://www.nytimes.com/2016/08/04/business/dealbook/walmart-said-to-be-in-talks-to-acquire-jetcom.html?ref=dealbook

 

I mentioned Jet a while back. They raised over $500mm to take on Amazon, founded by former Diapers.com founders. Basically re-affirms what we all know -- Amazon has a huge moat in retail.

 

I used Jet.com when it came out and gave $15 (?) coupon for the first purchase. Never used them afterwards. I was tempted once or twice for groceries where Amazon third-party prices are 2x-3x supermarket, but their search function was atrocious, so I gave up. They are still sending me crap email. Should unsubscribe.

 

I use Walmart.com if/when I need groceries that are overpriced at Amazon and not available in local stores.

 

Yeah, I used my $15 coupon too, and never ordered again.  I went to the site a few times to look for things, but the selection is so limited compared to Amazon that I stopped even looking there after a while.  We still buy most of our groceries locally at Market Basket, Hannaford's, Trader Joe's, Whole Foods, and various local farms.  Haven't ordered from, or god forbid walked into, a Wal Mart in a long time.  For non-grocery items we use Amazon, or local stores such as Target, Lowes, etc.  The Walmart experience cost outways any money saved.

[PatientCheetah]

To mingle with the lower class at the Walmart is too much for you? Just kidding

[rkbabang]

To mingle with the lower class at the Walmart is too much for you? Just kidding

 

:)  There is lower class and then there is Walmart.  I don't know where these people (Walmart shoppers and employees both) come from, people that gross and insane can only be seen there.

 

[Picasso]

Aww that's not very nice.  I love shopping there.  It's sometimes nice to get up in my underwear, throw on some slippers and drive over to the local Walmart to cash my unemployment check.  Can't exactly do that at Target.

[rkbabang]

Aww that's not very nice.  I love shopping there.  It's sometimes nice to get up in my underwear, throw on some slippers and drive over to the local Walmart to cash my unemployment check.  Can't exactly do that at Target.

 

I know. I'm a little bit of an elitist.  My standards aren't that high, but I do prefer to be around people who shower and get dressed before leaving the house.  Having an IQ above 75 is a plus as well.

 

 

[Jurgis]

I haven't shopped at Walmart for couple of years, so perhaps it's worse there now. In the past, it was normal like any other store. I'm talking some exurban inland CA and Amherst, NH locations here.

[rkbabang]

I haven't shopped at Walmart for couple of years, so perhaps it's worse there now. In the past, it was normal like any other store. I'm talking some exurban inland CA and Amherst, NH locations here.

 

My experience is mostly with the Raynham, MA, Bedford, NH, and Manchester, NH locations.  Amherst, NH is far enough away from the city that it is probably not as bad, but that location is a good 20min drive from my house, so I'd need a reason to go there.

 

[Guest longinvestor]

Bezos sells a million shares.

 

Surely part of his diversification plan.

[hyten1]

hmm... i guess people forget walmart.com, with that you don't have to drive anywhere ... isn't that how amazon.com works :)

 

i for one don't like to pay 50% more (for certain things) that is just me, amazon's auto price adjustment can be very sneaky sometimes.

 

i buy things from both amazon.com and walmart.com, depending on which one is cheaper ... no i don't have to pay for shipping at walmart.com as long as you spend more than $50.

 

 

[rkbabang]

hmm... i guess people forget walmart.com, with that you don't have to drive anywhere ... isn't that how amazon.com works :)

 

i for one don't like to pay 50% more (for certain things) that is just me, amazon's auto price adjustment can be very sneaky sometimes.

 

i buy things from both amazon.com and walmart.com, depending on which one is cheaper ... no i don't have to pay for shipping at walmart.com as long as you spend more than $50.

 

I had so many bad experiences with Walmart.com's "Site to Store" feature in the past that I forget that it is free shipping for >$50 and never check the site.  I'm going to have to remember to check next time I need something. Amazon's 2 day delivery is hard a hard habit to break though.  I find I get aggravated now when I order something somewhere else and it takes a week or more to come in.

 

[hyten1]

rkbabang, i agree

 

if i can't wait for something even if amazon is little more expensive i typically buy it from amazon.

 

but when it comes to household stuff etc that i can wait and if its cheaper at wm i'll buy it from wm.com. i don't like to get ripe off, especially when amzn started to auto changes their prices (this i hate). its sneaky and puts a doubt in my mind ever since they started this, everything i order from amzn now i have to check. because you will be shock at the prices difference "sometimes".

 

however wm has a new shipping pass which is similar to amazon prime in turns of 2 days shipping which is $49 per year, this i have not try it yet.

 

edit: take a look at this http://camelcamelcamel.com/simplehuman-Rectangular-Touch-Bar-Trash-Stainless/product/B0081HFGEY  its shocking the price ranges for items. this same item price range is $77 to $264. or this item http://camelcamelcamel.com/Repel-Eucalyptus-Natural-Repellent-4-Ounce/product/B004N59OFU

 

 

 

 

hmm... i guess people forget walmart.com, with that you don't have to drive anywhere ... isn't that how amazon.com works :)

 

i for one don't like to pay 50% more (for certain things) that is just me, amazon's auto price adjustment can be very sneaky sometimes.

 

i buy things from both amazon.com and walmart.com, depending on which one is cheaper ... no i don't have to pay for shipping at walmart.com as long as you spend more than $50.

 

I had so many bad experiences with Walmart.com's "Site to Store" feature in the past that I forget that it is free shipping for >$50 and never check the site.  I'm going to have to remember to check next time I need something. Amazon's 2 day delivery is hard a hard habit to break though.  I find I get aggravated now when I order something somewhere else and it takes a week or more to come in.

[Jurgis]

edit: take a look at this http://camelcamelcamel.com/simplehuman-Rectangular-Touch-Bar-Trash-Stainless/product/B0081HFGEY  its shocking the price ranges for items. this same item price range is $77 to $264. or this item http://camelcamelcamel.com/Repel-Eucalyptus-Natural-Repellent-4-Ounce/product/B004N59OFU

 

To be fair, for the first item the prices are 3rd party prices on Amazon. You cannot blame Amazon on what 3rd parties charge there. Edit: you can show Amazon price on the graph and variations are less.

 

You can blame Amazon for the second item price variations. Likely this is just an algorithm that tries to maximize profit based on demand, availability, 3rd party prices, etc. It's not clear why swings are so drastic - it doesn't look good for customers. I guess Amazon just assumes most consumers don't follow the prices and they are likely right.

 

Edit2: Also don't forget that these charts are for 4-5 years. That's a long time. If you look shorter term for http://camelcamelcamel.com/simplehuman-Rectangular-Touch-Bar-Trash-Stainless/product/B0081HFGEY, they have just a couple of sales - normal. For repellent, the variations are wide even shorter term.

[Vish_ram]

Has anyone used primenow? Phenomenal. I placed an order on July 31 for new Harry Potter book at 10:00 PM and got it 8AM next day.

 

For preselected items, they've 2 hour delivery. During order, AMZN asks for driver tips