AMZN - Amazon.com Inc.

[Liberty]

http://www.reuters.com/article/us-amazon-com-cloud-idUSKBN17L2FY

 

Opening up Lex, voice engine behind Alexa, to third parties. Will charge by usage. Will no doubt be useful to gather more data to train its algos too..

[Liberty]

Interesting piece by James Hamilton, Amazon’s AWS Architect, on how many data-centers are needed worldwide (with a dig at ORCL in the intro):

 

http://perspectives.mvdirona.com/2017/04/how-many-data-centers-needed-world-wide/

[frugalchief]

Scott Galloway - How Amazon is Dismantling Retail

 

 

Thanks for sharing Liberty.  As soon as I got home I asked Alexa about some items and saved $0.22 on diapers!  While not large savings compared to amazon.com, the wipes I also asked about were $10 cheaper with Alexa.  Our family tries to buy everything through Amazon, besides groceries.  I have no problem waiting 2 days and I hate parking/walking into malls/stores to get shit. 

 

On another note, I could see Amazon video being the next big thing, but IMO they need some better content.  I feel like Netflix is killing them on quality content.  At least for TV series/movies I enjoy.  I probably spend 70%+ of my "TV" time on Netflix, with the rest split with Amazon and regular cable/sports.

[Liberty]

https://www.wsj.com/articles/amazon-team-focuses-on-exploiting-driverless-technology-1493035203

 

Amazon Forms Team to Focus on Driverless Technology

 

For now, Amazon doesn’t intend to build a fleet of vehicles, according to these people. Instead, the team serves as an in-house think tank to figure out how to leverage autonomous vehicles.

 

The initiative, still in its early phases, could help the Seattle-based company overcome one of its biggest logistical complications and costs: delivering packages quickly. Amazon could use autonomous vehicles including trucks, forklifts and drones to move goods. In addition, driverless cars could play a broader role in the future of last-mile delivery, enabling easier package drop-offs, experts say.

[John Hjorth]

Scott Galloway - How Amazon is Dismantling Retail

 

 

Thank you for sharing here, Liberty.

 

To be totally honest, this clip is the first time somebody has been able to explain to me, what Amazon is about - in a way, so that I understand it.

 

I haven't spent much time on my interest so far, without been straight out lazy on that matter - so out of pure interest - call it what you want : What are the Amazon plans for the roll out of the business model, outside US/NA?

 

- So far, without doing a lot of search and reading, I haven't found anything on this matter.

 

Amazon is right now not dismantling anything near me, locally - as far as I know. I might be wrong about this, however.

 

The sharing of any insights on this matter will be much appreciated, thanks.

[Aurelius]

The new Echo Look by Amazon:

 

I think this is a pretty big deal. It gives us a window into how technology is going to aid humans in ways that are important to us, like for example having a personal fashion/style consultant who can help us decide which outfit looks better on us.

 

I suggest reading Brian Roemmele contrbution on this thread were he ends with these words:

I believe that the $200 price point, above the original Amazon Echo selling price today is steep. However I see a point in time where it will be about $99 or FREE. There are many compelling reasons for Amazon to start offering these devices at no cost to Prime customers who will use it to increase average tickets and average volume. Some shoppers may spend thousands of dollars through the Echo Look.

https://www.quora.com/Will-the-Amazon-Echo-Look-be-a-successful-product?ref=t_page

 

-----------

https://sixcolors.com/post/2017/04/amazons-new-echo-look-has-a-hands-free-camera/

Amazon says “Echo Look helps you discover new brands and styles inspired by your lookbook,” so presumably it can comb through the pictures you’ve taken (with your permission, I would hope) and use algorithms to figure out what other clothes you might want, based on your fashion choices.

A new way helping you find stuff you like! A key part of Amazon.com.

[Aurelius]

I haven't spent much time on my interest so far, without been straight out lazy on that matter - so out of pure interest - call it what you want : What are the Amazon plans for the roll out of the business model, outside US/NA?

 

- So far, without doing a lot of search and reading, I haven't found anything on this matter.

 

Amazon is right now not dismantling anything near me, locally - as far as I know. I might be wrong about this, however.

 

The sharing of any insights on this matter will be much appreciated, thanks.

 

Amazon has been expanding outside of US/NA for probably 2 decades now.

 

Like you, I live in Denmark. Amazon does (I think) zero advertizing in Denmark. In contrast I've seen advertizing by Zalando (fashion ecommerce retailer from Germany). I'm quite certain this is because the Scandinavian region is quite small compared to Germany, France, UK, Spain, Italy, China, India, and so on. So until now they have focused on the bigger markets.

 

But recently their German website (amazon.de) introduced language settings (English, Nederlandsm Polish and Turkish) making it easier to do business for non-German costumers. Also a few months ago they started doing free shipping to Denmark when you order for over €39. For me this has been a game changer. Now I get most things from Amazon that isn't groceries.

 

The great thing about buying on Amazon is of course the great selection, delivery to your home, and the reviews from other buyers of the product.

 

So instead of going to the mall hoping to find a nice foot spa massager where they might stock 2 examples and the clerk tells you it's great even though he has never tried it... You log on Amazon, where there is great selection and feedback from other costumers. Plus you get all that other stuff you also need from the comfort of home.

 

And probably the best part I haven't even mentioned yet. The price. It's pretty amazing how much you can save on Amazon compared your average Danish mall. It's super normal to get your items for 25% less.

 

But most people don't really know this in Denmark, as Amazon doesn't do any advertizing here. But the change is coming. When I'm taking a stroll in Bahne and see a 49%(!) markup compared to Amazon on a Bodum coffee press:

https://www.bahne.dk/bodum-columbia-kaffebrygger-8-kopper-mat-krom.html

https://www.amazon.de/dp/B00005YY9X/ref=wl_it_dp_o_pC_nS_img?_encoding=UTF8&colid=BNNJRGEHR8XE&coliid=IE8WECZY1U29U&psc=1

 

It's reenforcing to me, that I really shouldn't bother buying stuff in malls (i.e. if not in a hurry to get it). It's so much cheaper on Amazon and so much easier as well.

 

So, I'm certain, that although you are not seeing any dismantling locally right now. It's happening. Within 5 years a lot will have changed.

[frugalchief]

Take my money now Amazon. Geez. I'm a simple man....jeans and white shirt, or a uniform polo at my job.  But for my wife and her friends, this will be a game changer.  I don't know fashion (or really care for that matter), but she will like it and probably start buying more clothes on Amazon.com.  We've started to turn more clothes shopping to Amazon.com, I'm sure this will propel that.  Good job Amazon.

 

I bought the Fire tablet when it was on sale before Christmas.  I chuckled when I read this from Jonathan Brill on https://www.quora.com/Will-the-Amazon-Echo-Look-be-a-successful-product?ref=t_page, but it's me 100%: 

I now own a Kindle. When thinking about what device to get for my kids, I surveyed the two iPads I already owned and realized the Kindle was just better. I hate Amazon so much for this. The Kindle was cheaper (so I didn’t care as much if it was smashed), had a better user interface for kids, and had an app store and subscription plan that a five year old could understand and use. It was superior in its simplicity. I haaaaaate Amazon.

  My son loves the learning apps much more on the Fire then the iPad (which screen he broke...which costs as much as 2 Fire tablets to replace).

 

It's difficult to see 10-20 years down the road, but I don't see how Amazon.com won't partake in practically everything we do in our house.  The runway is super long....we just don't know it yet (Amazon core philosophy is providing us things we don't know we need yet). 

 

I can't remember where I read this article at, but there was a comment by some VP at Amazon.com who asked Jeff when Amazon.com would "stop inventing" or label themselves as "successful," in which he commented, "maybe when we can ship a train car of [some mineral extracted from earth] from China to the US that was sold on Amazon.com...maybe then."

 

I could see the ability to buy autos on Amazon.com, which financing done in a flash and frictionless, with them being delivered right to your driveway.  Same with real estate.

[rkbabang]

I haven't spent much time on my interest so far, without been straight out lazy on that matter - so out of pure interest - call it what you want : What are the Amazon plans for the roll out of the business model, outside US/NA?

 

- So far, without doing a lot of search and reading, I haven't found anything on this matter.

 

Amazon is right now not dismantling anything near me, locally - as far as I know. I might be wrong about this, however.

 

The sharing of any insights on this matter will be much appreciated, thanks.

 

Amazon has been expanding outside of US/NA for probably 2 decades now.

 

Like you, I live in Denmark. Amazon does (I think) zero advertizing in Denmark. In contrast I've seen advertizing by Zalando (fashion ecommerce retailer from Germany). I'm quite certain this is because the Scandinavian region is quite small compared to Germany, France, UK, Spain, Italy, China, India, and so on. So until now they have focused on the bigger markets.

 

But recently their German website (amazon.de) introduced language settings (English, Nederlandsm Polish and Turkish) making it easier to do business for non-German costumers. Also a few months ago they started doing free shipping to Denmark when you order for over €39. For me this has been a game changer. Now I get most things from Amazon that isn't groceries.

 

The great thing about buying on Amazon is of course the great selection, delivery to your home, and the reviews from other buyers of the product.

 

So instead of going to the mall hoping to find a nice foot spa massager where they might stock 2 examples and the clerk tells you it's great even though he has never tried it... You log on Amazon, where there is great selection and feedback from other costumers. Plus you get all that other stuff you also need from the comfort of home.

 

And probably the best part I haven't even mentioned yet. The price. It's pretty amazing how much you can save on Amazon compared your average Danish mall. It's super normal to get your items for 25% less.

 

But most people don't really know this in Denmark, as Amazon doesn't do any advertizing here. But the change is coming. When I'm taking a stroll in Bahne and see a 49%(!) markup compared to Amazon on a Bodum coffee press:

https://www.bahne.dk/bodum-columbia-kaffebrygger-8-kopper-mat-krom.html

https://www.amazon.de/dp/B00005YY9X/ref=wl_it_dp_o_pC_nS_img?_encoding=UTF8&colid=BNNJRGEHR8XE&coliid=IE8WECZY1U29U&psc=1

 

It's reenforcing to me, that I really shouldn't bother buying stuff in malls (i.e. if not in a hurry to get it). It's so much cheaper on Amazon and so much easier as well.

 

So, I'm certain, that although you are not seeing any dismantling locally right now. It's happening. Within 5 years a lot will have changed.

 

Don't be surprised if it takes a little longer than 5 years.  Amazon has been operating in the US for 20 years, it has been a big deal here for 15 years, it has been a very big deal here for 10 years, and we are just starting to see the massive bankruptcies and retail store closings now.  The pressure builds up for a long time before things start to happen "overnight".

 

[Aurelius]

Yea, agree. What I meant is that within 5 years Amazon will be way more visible in Denmark than at present. Within 10 years, I'd have to imagine, A LOT will have changed. The markup at regular danish malls compared to Amazon just seems completely unsustainable.

[DooDiligence]

Yea, agree. What I meant is that within 5 years Amazon will be way more visible in Denmark than at present. Within 10 years, I'd have to imagine, A LOT will have changed. The markup at regular danish malls compared to Amazon just seems completely unsustainable.

 

Have you identified any ancillary Danish businesses which will benefit over the next 10 to 20 years by an increased Amazon presence?

 

This is a fascinating subject & the discussion here is top notch (as usual.)

 

It never occurred to me but I actually go to Amazon 1st (a lot) to search through product Q & A's & reviews when trying to assemble or repair products.

 

If I don't find anything helpful, I go to Google (and I frequently find the info I need from other users at Amazon.)

[Jurgis]

Anybody's using Prime Pantry or Prime Now? Amazon keeps offering $5/$10 coupons for me to use these, but Pantry looks like a hassle and Now - not sure what's available in it that I would buy...

 

And BTW Amazon adding ads to their pages... not so cool. This could be a reason to shop somewhere else... ah but where.  ::)

[John Hjorth]

Yea, agree. What I meant is that within 5 years Amazon will be way more visible in Denmark than at present. Within 10 years, I'd have to imagine, A LOT will have changed. The markup at regular danish malls compared to Amazon just seems completely unsustainable.

 

Have you identified any ancillary Danish businesses which will benefit over the next 10 to 20 years by an increased Amazon presence?

 

This is a fascinating subject & the discussion here is top notch (as usual.)

 

It never occurred to me but I actually go to Amazon 1st (a lot) to search through product Q & A's & reviews when trying to assemble or repair products.

 

If I don't find anything helpful, I go to Google (and I frequently find the info I need from other users at Amazon.)

 

DooDiligence,

 

So far, I see a lot of loosers in this game going forward - it will get really messy, I think. Second richest guy on the island called Funen in the middle of Denmark is a real estate investor in scond generation. He actually owns 60 - 70 percent of all real estate in the two main shopping streets here in Odense. The last couple of days it has come to my attention that he has his personal statue just outside our favorite restaurant. You can see the statue here [,ref. an expression used by watchwoord earlier on this board also].

[DooDiligence]

Yea, agree. What I meant is that within 5 years Amazon will be way more visible in Denmark than at present. Within 10 years, I'd have to imagine, A LOT will have changed. The markup at regular danish malls compared to Amazon just seems completely unsustainable.

 

Have you identified any ancillary Danish businesses which will benefit over the next 10 to 20 years by an increased Amazon presence?

 

This is a fascinating subject & the discussion here is top notch (as usual.)

 

It never occurred to me but I actually go to Amazon 1st (a lot) to search through product Q & A's & reviews when trying to assemble or repair products.

 

If I don't find anything helpful, I go to Google (and I frequently find the info I need from other users at Amazon.)

 

DooDiligence,

 

So far, I see a lot of loosers in this game going forward - it will get really messy, I think. Second richest guy on the island called Funen in the middle of Denmark is a real estate investor in scond generation. He actually owns 60 - 70 percent of all real estate in the two main shopping streets here in Odense. The last couple of days it has come to my attention that he has his personal statue just outside our favorite restaurant. You can see the statue here [,ref. an expression used by watchwoord earlier on this board also].

 

Cool looking sculpture (kind of looks like the fat guy has a penis coming out of his stomach & the tall one is shielding from the money shot...)

[John Hjorth]

I haven't spent much time on my interest so far, without been straight out lazy on that matter - so out of pure interest - call it what you want : What are the Amazon plans for the roll out of the business model, outside US/NA?

 

- So far, without doing a lot of search and reading, I haven't found anything on this matter.

 

Amazon is right now not dismantling anything near me, locally - as far as I know. I might be wrong about this, however.

 

The sharing of any insights on this matter will be much appreciated, thanks.

 

Amazon has been expanding outside of US/NA for probably 2 decades now.

 

Like you, I live in Denmark. Amazon does (I think) zero advertizing in Denmark. In contrast I've seen advertizing by Zalando (fashion ecommerce retailer from Germany). I'm quite certain this is because the Scandinavian region is quite small compared to Germany, France, UK, Spain, Italy, China, India, and so on. So until now they have focused on the bigger markets.

 

But recently their German website (amazon.de) introduced language settings (English, Nederlandsm Polish and Turkish) making it easier to do business for non-German costumers. Also a few months ago they started doing free shipping to Denmark when you order for over €39. For me this has been a game changer. Now I get most things from Amazon that isn't groceries.

 

The great thing about buying on Amazon is of course the great selection, delivery to your home, and the reviews from other buyers of the product.

 

So instead of going to the mall hoping to find a nice foot spa massager where they might stock 2 examples and the clerk tells you it's great even though he has never tried it... You log on Amazon, where there is great selection and feedback from other costumers. Plus you get all that other stuff you also need from the comfort of home.

 

And probably the best part I haven't even mentioned yet. The price. It's pretty amazing how much you can save on Amazon compared your average Danish mall. It's super normal to get your items for 25% less.

 

But most people don't really know this in Denmark, as Amazon doesn't do any advertizing here. But the change is coming. When I'm taking a stroll in Bahne and see a 49%(!) markup compared to Amazon on a Bodum coffee press:

https://www.bahne.dk/bodum-columbia-kaffebrygger-8-kopper-mat-krom.html

https://www.amazon.de/dp/B00005YY9X/ref=wl_it_dp_o_pC_nS_img?_encoding=UTF8&colid=BNNJRGEHR8XE&coliid=IE8WECZY1U29U&psc=1

 

It's reenforcing to me, that I really shouldn't bother buying stuff in malls (i.e. if not in a hurry to get it). It's so much cheaper on Amazon and so much easier as well.

 

So, I'm certain, that although you are not seeing any dismantling locally right now. It's happening. Within 5 years a lot will have changed.

 

Thank you very much for posting an extensive reply to me here, Aurelius! It's very much appreciated - great stuff!

 

This been an eye opener for me - a wake up call. Actually the best consumer advice for long time here on CoBF for me.

 

I have personally been an Amazon customer for many years - it has mostly been about buying books, most of them shipped from the US - a few from the UK, I think.

 

I have a question for you about VAT here. When I have bought books from US, I get them free of US sales tax. Amazon declares the value of the package to the Danish IRS/Customs, and after the delivery of the book I get a snail mail invoice from the Danish IRS on Danish Import Tax, 25% of the value of the package declared by Amazon, and including a processing fee for processing and invoicing. That fee is not much, but it's nagging me, because I'm a cheapskate, I think of it as a part of the total cost of a book, and as a percentage, it can actually be material. - And then naturally you spend a bit of time to pay the invoice, which is OK with me, though.

 

How does this work, when you order and take delivery from amazon.de site? Do you just end up paying the German tax rate of 19 percent [in general - there are expemptions with lower VAT rates, as far as I know], so a part of your savings is that you are doing VAT based arbitrage based on national borders?

 

- - - o 0 o - - -

 

No matter what your answer will be here, I helped the Lady of House to setup a new account at amazon.de, and she will start using it actively. She is interested in this stuff, and is generally very price conscious on everything. Because what I can see from your savings expample is, that the savings are much bigger than just an eventual VAT difference - which like you have written - is an idicator of generally materially lower prices at amazon.de than in some Danish mall or or physical shop.

 

- - - o 0 o - - -

 

Partly releated - partly not:

 

Groceries:

 

We got a of couple of new young neighbours last year in May. He's a software engineer - working like a totally crazy - she is a nurse, just out of her maternal leave with the first child. They shop groceries at nemlig.com. ["nemlig" in Danish translates to English the best way as "exactly"]. I know exactly what this is about: He has the car on daily basis, so he has to do the shopping, because it would a practical struggle for his wife because of the young child. So he decided to go digtal on shopping, because he does not want to use his scarce spare time off work - late on working days or in weekends on such a trivial thing as buying stuff for the household. The nemlig.com van arrives here typically once a week with their stuff.

 

It caught interest at the Lady of the House some months ago, and she asked me to install MobilePay on her Samsung phone so that she could start buying groceries on the site, which I simply vetoed, without looking further into it. I have looked into it again now, and found out, that she or I can actually pay by delivery with any of our cards, so she has now got her account at that site also.

 

She is not impressed with the product range, though - most likely it evolve over time, a positive way.

 

Then I had to take a closer look at this tiny shop called "Exactly" ... I got so surprised! Almost DKK 900M in turnover in last financials on overall group level - up more than DKK 100 M from the year before. It's burning a lot of cash - DKK 150 M within the last two years - but the development in the cash burn is in the right direction now.

 

Denmarks second richest man - Anders Holck-Poulsen - The Bestseller Man - has poured DKK 100 M capital into this thing last year.

 

- - - o 0 o - - -

 

TV2 Denmark: DAGROFA closes the KIWI chain in Denmark - 1,800 are getting laid off today [28 April 2017].

 

ComputerWorld: Amazon comes thundering against Danish digital commerce: "The World has never seen a business like this one before."[6 January 2017].

[Spekulatius]

The situation is probably different in Europe, but in the US, Amazon is mostly used because it is convenient (even to return stuff ) not because it is cheap. Ecommerce is about 10% of total here and growing probably 20% YoY. Now if you assume that total commerce is growing 2% or thereabout, you can do the math and pretty much all the growth is ecommerce. if you extrapolate this further a few years, retail quickly can become a rapidly melting icecube.

 

20 years from now, city and town centers could look very different than they do now, with way less retail locations and strip malls. I would guess that many town centers will be redeveloped with mixed used residential /commercial properties, that create meeting points, where people want to go rather than have to go for chores. In the past, malls served that purpose to some extend, but I think they will have to change drastically to fill the need for social interaction going forward.

[John Hjorth]

The situation is probably different in Europe, but in the US, Amazon is mostly used because it is convenient (even to return stuff ) not because it is cheap. Ecommerce is about 10% of total here and growing probably 20% YoY. Now if you assume that total commerce is growing 2% or thereabout, you can do the math and pretty much all the growth is ecommerce. if you extrapolate this further a few years, retail quickly can become a rapidly melting icecube.

 

20 years from now, city and town centers could look very different than they do now, with way less retail locations and strip malls. I would guess that many town centers will be redeveloped with mixed used residential /commercial properties, that create meeting points, where people want to go rather than have to go for chores. In the past, malls served that purpose to some extend, but I think they will have to change drastically to fill the need for social interaction going forward.

 

Personally, I think your predictions and extrapolations here will end up beeing quite near what we will see happen in the future, Speculatius. Thanks for sharing your thoughts.

 

My link in an earlier post in this topic to the statue here in Odense called "The Emperor's new clothes" [after the fairytale of the Danish poet Hans Christian Andersen, born here in Odense] was my immediate and first level thinking about owning real estate under such future circumstances in town centers.]

[peatey]

Does anybody have access to today's Barclays report by Ross Sandler referenced on CNBC? Seems to be really upbeat on the groceries business and would like to see his evidence.

 

http://www.cnbc.com/2017/05/01/robo-vans-more-automation-could-help-amazon-grocery-reach-breakeven.html

The report also said AmazonFresh could potentially generate more than $40 billion in gross merchandise value, or total sales volume, in the next 10 to 15 years from its online fresh grocery business.

 

"AmazonFresh may have finally cracked the code to unlocking this massive market opportunity," Barclays said.

 

...

 

In fact, Barclays is so upbeat on Amazon's prospects in the online grocery space its long-term model is for the company's Fresh service to potentially reach 15 percent-plus of total households in a decade.

 

[TwoCitiesCapital]

The situation is probably different in Europe, but in the US, Amazon is mostly used because it is convenient (even to return stuff ) not because it is cheap. Ecommerce is about 10% of total here and growing probably 20% YoY. Now if you assume that total commerce is growing 2% or thereabout, you can do the math and pretty much all the growth is ecommerce. if you extrapolate this further a few years, retail quickly can become a rapidly melting icecube.

 

20 years from now, city and town centers could look very different than they do now, with way less retail locations and strip malls. I would guess that many town centers will be redeveloped with mixed used residential /commercial properties, that create meeting points, where people want to go rather than have to go for chores. In the past, malls served that purpose to some extend, but I think they will have to change drastically to fill the need for social interaction going forward.

 

This reminds me - a friend at work was amazed by how much cheaper most things were at WalMart.com than they were an Amazon. Not everything, but most items were cheaper and some by as much as 10-20% cheaper. I had it in my head that Amazon was the cheapest option around that I had not even considered checking Walmart any longer - but when I shop myself, I now price compare.

 

The main difference for me between Amazon and Walmart is the free 2-day shipping. Most items I order I can afford to wait for though...

[walkie518]

Interest to hear if people think differently on this analysis?

 

If you review the Amazon cash flow statements TTM, you find a company generating $17.6B in cash from operating activities.  Pull out stock comp plus another 33% in the case Amazon overstates, and that's a 4.2B non-cash draw.  Depreciation/capitalized content costs are $8.7B.  Maybe 25% is a real cost today so $2.175B.  The rest of the operating section is business related and impossible to say one way or the other.  That said, TTM, I see a conservative estimate of $6.375B for "real" costs on $17.6B of operating cash flow or $11.23B of owner's earnings. 

 

The weighted average cost of capital for Amazon is pretty close to 3%.  Amazon pays net $400m annually in net interest expense and total liabilities are 37.4B or 1.1%.  Though this figure isn't fair since most of this figure is current liabilities and has to do with the company's negative operating cycle: customers pay with credit cards when items are shipped, but Amazon settles its accounts with the wholesalers only every few months.  As increasing numbers flock to purchase certain goods online rather than in person, there is the creation of short-tail "float."  Maybe the float is worth nothing.  Amazon's book value is $21.7B so if cost of equity is 10% or $2.2B, $400m+2.2B = $2.6B.  I think book is understated...what Walmart paid $3B for last year, Amazon marks at $1.4B, and the Amazon position is worth a multiple of what Walmart purchased--let's leave this aside.  Total assets is $81B  meaning Amazon's weighted average cost of capital is $2.6B/$81B or 3.2%.  In other words, Amazon needs to make greater than a 3.2% return on assets to build equity.  TTM, Amazon has generated a 51.8% return on $21.7B of equity so net spread over cost of capital is 48.6%.  If Amazon can keep this spread, the intrinsic value of the company doubles every year and a half without the benefit of broader growth in the economy. 

 

Retail is the core business so why not compare with Walmart?  Walmart generated $31.5B in cash for the 12 months ending this past January.  $10B was depreciation.  It would be fair to say that Walmart's depreciation is more expensive than Amazon's since a huge chunk of Amazon's depreciation are the depreciation of capitalized costs for content.  The life of a data center is around 7-12 years, but the largest costs are sunk in the beginning rather than any time during the maintenece period or refresh cycle.  Walmart is also old, but I'll give them the benefit of the doubt that 25% is a good number so that I understand maintenance and repairs to be roughly $2.5B.  Amazon's inventory figure is a negative number for the trailing 12 months simply because of how quickly its wares sell and how it distributes them.  Walmart uses its stores to warehouse as a result Walmart holds much more inventory.  For the last 12 months, there are about $1B of inventory that may or may not get sold but are held as a cash flow item.  I would discount $500m here.  I would also take out deferred income taxes ($761m) b/c in previous years they've paid as well as an average of the "other" operating activities line for the last 3 years ($800m).  So we see owner's earnings at $31.5B - $2.5B - $500m - $761m = $27.74B.

 

Walmart's cost of capital is about 5%.  Walmart pays $2.3B in interest expense on $121B of liabilities, or 1.9%.  Walmart has a book value of $78B so using the same metric as with Amazon above (10%) we find $2.3B+$7.8B = $10.1B cost of capital.  Total assets at $200B mean the cost of capital is 5.1%. Walmart needs to earn in excess of this figure to build intrinsic value, and it does.  Walmart earns 13.9% leaving a spread of 8.8% for annual intrinsic value creation.  Walmart's spread over cost of capital is mere 18% of Amazon's spread over cost of capital.  From this angle, the multiple on Amazon's owner's earnings should be 5.5x greater than Walmart's.  Markets and logic don't always cross paths.  Walmart trades with a market cap of $229B or 8.26x owner's earnings which, from this angle and by this logic, means Amazon should trade at 45.4x owner's earnings.  This would value Amazon at $510B which is 11% more than where it trades today.  This thinking should incorporate the low 20% growth Amazon is seeing in sales versus Walmart's 1.8% average over the last 4 years?

 

Maybe Walmart isn't the best example?  Perhaps Facebook is a better since it comps a technology company with another technology company? 

 

Say the network effect for Facebook remains consistent and that acquisitions don't control how Facebook invests in its future.  Say the current investments yield good results and there is no scandal regarding or cyclical trends in the advertising business. 

 

In the last 10K, Facebook shows $16.1B in cash from operating activities.  Share-based comp is stated at $3.2B, treating the same way I did for Amazon, I would deduct  $4.3B for this line item.  Facebook's depreciation is $2.3B (I deduct 25% or $575m here) and there's another $2.3B of accrued expenses and other liabilities.  I give them the benefit of the doubt for the rest.  $16.1B - $4.3B - $575m - $2.3B = $8.93B.  Facebook has no debt only equity costs.  Book is $59.2B at 10% means Facebook's cost of equity is $5.92B against $65B in assets or Facebook has a 9.1% cost of capital.  Facebook has owner's earnings of 15.1% against its capital base leaving a spread of 6%.  This means Facebook doubles intrinsic value every 12 years.  Sure, if Facebook borrowed, the figures would look much better, but they don't.  Considering how cyclical advertising is, and that the online/mobile model has not been proven through any economic cycle, it's probably better they don't borrow. 

 

Using the same metric as above, this means that Facebook's spread of 6% over cost of capital compares to Amazon's spread of 48.6%.  From this angle, Amazon should increase its intrinsic value at a clip that is 8.1x faster than Facebook.  Today, Facebook trades at $153/sh with 2.35B of A shares and 535m B shares or 2.9B shares outstanding or a $442B market cap.  This means that the $8.9B Facebook has in owner's earnings means the company trades at $442/$8.93 = 49.5x.  If Amazon's owner's earnings have a spread greater than 8x, this would justify 8 x 49.5 =  396x owner's earnings.  This is an astronomical number that would equate to a $4.45Tr market cap ($11.23B x 396).  This would mean that if Amazon traded where Facebook is trading, Amazon shares would be worth $9309/sh or a little under 10x where they trade today.

 

The reality is neither Walmart nor Facebook are good examples.  Walmart is an old-school big-box model and Facebook is an advertising business.  Amazon has an internal advertising business that I think generated around $400m in operating profit last year (sponsored items on the retail end of the website), but retail and AWS are the two segmented pieces.  I foresee at the next downturn, Facebook will come back to reality.  It is likely that Walmart, on the other hand, will grow with the country for the foreseeable future.  The Jet acquisition was better than no Jet acquisition, but Amazon has solidified its position as Facebook's instragram (I wouldn't necessarily say that Facebook is itself as valuable as it once was as my generation ages).  That is, the network effect is a real factor: online, products or services become increasingly valuable as more people use them.  People will shop on Amazon the second, third, and fourth time just as people will waste time on Instragram a second, third, and fourth time.  Walmart.com or jet may compete with Amazon, but the $5Tr US retail market has room for more than one player.  Google's market cap is the size of the entire advertising market, Facebook's is pretty close to it. 

 

[RedDaruma]

Not sure if somebody already posted this but this is very informative IMO.

 

Attached: How Amazon Halved Its Shipping Costs In A Decade

RD

How_Amazon_Halved_Its_Shipping_Costs_In_A_Decade.pdf

[Liberty]

Not sure if somebody already posted this but this is very informative IMO.

 

Attached: How Amazon Halved Its Shipping Costs In A Decade

RD

 

Thanks you.

[crastogi]

thanks!

[Liberty]

Jeff Bezos interview (37 minutes) from May 5:

 

[Sunrider]

How good have this guy's conclusions been - just watching a Jan 20 2015 DLD video in which he says pure play retail does not work and Amazon will buy a large physical outlet infrastructure? So far? Nope.

Any views?

C.

 

Scott Galloway - How Amazon is Dismantling Retail

 

 

Thank you for sharing here, Liberty.

 

To be totally honest, this clip is the first time somebody has been able to explain to me, what Amazon is about - in a way, so that I understand it.

 

I haven't spent much time on my interest so far, without been straight out lazy on that matter - so out of pure interest - call it what you want : What are the Amazon plans for the roll out of the business model, outside US/NA?

 

- So far, without doing a lot of search and reading, I haven't found anything on this matter.

 

Amazon is right now not dismantling anything near me, locally - as far as I know. I might be wrong about this, however.

 

The sharing of any insights on this matter will be much appreciated, thanks.