AMZN - Amazon.com Inc.

[Liberty]

For those who, like me, weren't familiar with PillPack, here's what they do:

 

 

Pretty clever. And licensed in 49 states.

 

Video found via @bluff_capital on Twitter.

 

 

[KCLarkin]

For those who, like me, weren't familiar with PillPack, here's what they do:

 

 

Pretty clever. And licensed in 49 states.

 

Video found via @bluff_capital on Twitter.

 

Looks like they are pretty small - about $100M in revenue.

[Liberty]

For those who, like me, weren't familiar with PillPack, here's what they do:

 

 

Pretty clever. And licensed in 49 states.

 

Video found via @bluff_capital on Twitter.

 

Looks like they are pretty small - about $100M in revenue.

 

Yeah, they're def not buying revenue.

 

One easy way to get more scale is to use it internally with Amazon's employees, and use it with the JPM-BRK health partnership too.

 

They're positioning themselves for the long-term, and this is one more piece of the puzzle, IMO.

[dcollon]

Interesting video.  Thanks for posting.

[Liberty]

Profile of PillPack from last year:

 

https://www.wired.com/story/pillpack-pharmacy-of-the-future-is-ready-for-your-bathroom/

[KCLarkin]

They're positioning themselves for the long-term, and this is one more piece of the puzzle, IMO.

 

I assume the key asset here is the license in 49 states since this is a niche product. And the 'technology' itself isn't proprietary: https://www.cvs.com/content/multidose

 

Smart buy for Amazon. I'm surprised Walmart or WBA or CVS didn't bid just to defend against Amazon.

[Cigarbutt]

I assume the key asset here is the license in 49 states since this is a niche product. And the 'technology' itself isn't proprietary: https://www.cvs.com/content/multidose

 

-----

 

Interesting link about comparative advantages (from 3 long years ago):

https://www.pharmacytimes.com/contributor/timothy-aungst-pharmd/2015/06/how-cvs-and-walgreens-might-compete-with-pillpack

 

-----

 

Smart buy for Amazon. I'm surprised Walmart or WBA or CVS didn't bid just to defend against Amazon.

 

-----

 

It looks like Walmart, at least, was interested.

https://www.cnbc.com/2018/04/02/walmart-buying-pillpack-online-pharmacy-sources.html

[Liberty]

https://www.cnbc.com/2018/07/11/amazon-providence-xealth-pilot-hospital-discharge.html

 

Amazon is talking with a start-up called Xealth and at least two hospital networks about a pilot project that would let doctors recommend bundles of medical products to their patients before they're sent home, and have those products delivered to patients' homes upon discharge, according to several people familiar.

 

The idea behind the pilot, which is still under review and is slated to start in a matter of months, is to provide patients discounted easy access to the medical supplies and other goods they need via Amazon Prime. Those who do not have a Prime membership or do not want to use Amazon would still be able to access the pilot via other e-commerce providers.

[rkbabang]

Amazon to start selling its own networking equipment

https://seekingalpha.com/news/3370027-amazon-anxiety-network-switches-sector

 

[walkie518]

Amazon to start selling its own networking equipment

https://seekingalpha.com/news/3370027-amazon-anxiety-network-switches-sector

this is a very interesting...

 

I believe Broadcom currently manufactures the switches used in Amazon's data centers?  Can any one verify if it isn't split?

 

I don't think Amazon is manufacturing on their own only designing? 

 

The next generation of switching will likely be GaN?  Does anyone have an opinion here and how Amazon might only be taking advantage of a relatively short-term (5 yr) opportunity?

[rkbabang]

Amazon to start selling its own networking equipment

https://seekingalpha.com/news/3370027-amazon-anxiety-network-switches-sector

this is a very interesting...

 

I believe Broadcom currently manufactures the switches used in Amazon's data centers?  Can any one verify if it isn't split?

 

I don't think Amazon is manufacturing on their own only designing? 

 

The next generation of switching will likely be GaN?  Does anyone have an opinion here and how Amazon might only be taking advantage of a relatively short-term (5 yr) opportunity?

 

https://www.geekwire.com/2017/amazon-web-services-secret-weapon-custom-made-hardware-network/

 

An interesting article and video.  It looks like Amazon has a number of potential datacenter networking related products it could bring to market. It mentions a custom chip from Broadcom, but it also mentions that they are designing their own silicon now for some things since they purchased Annapnurna a few years ago.

 

[shalab]

Has anyone done AMZN valuation recently?

 

They are growing sales at a very fast clip still.

 

If one does sum of the parts:

 

Retail: 250 B - 500 B

AWS: 200 B - 500 B

Advertising: 200B - 400B

Amzn third party market place: 20-100B

 

At the low end, this is 670B and at the high end it is 1.5 trillion.

 

Do others have opinions?

[SlowAppreciation]

Advertising seems exceptionally high to me. At the high end that’s half of google?

[LongTermView]

Advertising seems exceptionally high to me. At the high end that’s half of google?

 

I agree with SlowAppreciation. What is the thesis for Advertising being worth 200B - 400B, shalab?

[shalab]

Estimate of Amazon ad revenue is 5B/year growing very rapidly. At a multiple of 40, it is 200B. At a multiple of 80, it is 400B. Don't forget that AMZN is gaining retail share all over the world except China. AMZN has potential here as they have leadership in voice activated search (Alexa) and have their own line of devices. (kindle).

 

Even if you alter the valuation to 50B at low end and 200B at the high end, we have these numbers:

 

Retail: 250 B - 500 B

AWS: 200 B - 500 B

Advertising: 50B - 200B

Amzn third party market place: 20-100B

 

Low end: 520B

High end: 1.4 trillion

 

 

Advertising seems exceptionally high to me. At the high end that’s half of google?

 

I agree with SlowAppreciation. What is the thesis for Advertising being worth 200B - 400B, shalab?

[dwy000]

40-80x revenues???  Even growing rapidly that's too rich.  40-80x earnings is pricey.

[walkie518]

Advertising seems exceptionally high to me. At the high end that’s half of google?

 

I agree with SlowAppreciation. What is the thesis for Advertising being worth 200B - 400B, shalab?

There is a very strong argument that AMZN's advertising business could be worth more per dollar of ad revenues than either Facebook's or Google's over time. 

 

Amazon can verify information on its customers with certainty since its links to the consumer are direct.  At least from a marketability standpoint, Amazon wins that race every day. 

 

Facebook and Google certainly have vast stores of data and perhaps can leverage those data lakes to come up with tools resulting with similar or same accuracy; however, having 100% certainty should be worth more than 98%? 

 

At the same time, Amazon isn't really letting us see too much in the 10Ks and 10Qs...the "other" line in revenues for Q1 showed $2B ("[p]rimarily includes sales of advertising services, as well as sales related to our other service offerings").  Let's assume this is advertising sales.  2017 Q1 shows $850m in sales that grew to $2B in 2018 Q1.  Maybe that growth rate is unsustainable and today ad sales stagnate to $2.5B/qtr or $10B annually. 

 

Facebook trades at 13.6x sales and Google at 7.2x sales.  Without decline or growth in ad sales, this business should be worth as much or more than those two peers: $72B - $136B.  Should Amazon begin to take share from either of the two, one could argue that a higher multiple is warranted, and should Amazon's ad business continues to grow at this pace, this analysis could undervalue the segment.  139% sales growth is impressive no matter how you slice it.

 

This assumes, of course, that Facebook and Google's only businesses are ad businesses...

 

[LongTermView]

There is a very strong argument that AMZN's advertising business could be worth more per dollar of ad revenues than either Facebook's or Google's over time. 

 

Amazon can verify information on its customers with certainty since its links to the consumer are direct.  At least from a marketability standpoint, Amazon wins that race every day. 

 

Thanks for pointing out the importance of verifying customer info, walkie518.

[SlowAppreciation]

I also think AMZN marketplace might be low (at least relative to AMZN retail)... I think the $ sales is the same, but AMZN marketplace must be pure profit, no?

[shalab]

I valued market place modeled after ebay. There is another component of amazon i.e., amazon prime video competitor to netflix. I bundled this and prime with retail as it helps the retail business. While it is difficult to argue that AMZN is undervalued, there are many sub businesses under AMZN.

 

 

I also think AMZN marketplace might be low (at least relative to AMZN retail)... I think the $ sales is the same, but AMZN marketplace must be pure profit, no?

[walkie518]

I also think AMZN marketplace might be low (at least relative to AMZN retail)... I think the $ sales is the same, but AMZN marketplace must be pure profit, no?

 

AMZN's sales are recorded on a net revenue basis not a gross revenue basis--so whatever sales are made via marketplace only shows up as fees generated from marketplace.  From this view, AMZN's gross sales could be substantially understated.  Of course, the logistics costs for providing prime to third-party sellers shows up, but I don't know if that's net of the marketplace revenues or as a separate line item in logistics for operations in general? 

 

When comparing AMZN's price to sales versus, say, Walmart, you are not looking apples-to-apples.  I would have to check how eBay marks sales, but my guess is they provide a net number as well? 

 

The real gross number would be an interesting figure...my estimate puts sales closer in size to Walmart and makes the published figures of 10% of US retail sales a joke... cuts both ways though since the runway for retail is likely smaller than people think (though I think AWS is just ramping)

 

[SlowAppreciation]

I also think AMZN marketplace might be low (at least relative to AMZN retail)... I think the $ sales is the same, but AMZN marketplace must be pure profit, no?

 

AMZN's sales are recorded on a net revenue basis not a gross revenue basis--so whatever sales are made via marketplace only shows up as fees generated from marketplace.  From this view, AMZN's gross sales could be substantially understated.  Of course, the logistics costs for providing prime to third-party sellers shows up, but I don't know if that's net of the marketplace revenues or as a separate line item in logistics for operations in general? 

 

When comparing AMZN's price to sales versus, say, Walmart, you are not looking apples-to-apples.  I would have to check how eBay marks sales, but my guess is they provide a net number as well? 

 

The real gross number would be an interesting figure...my estimate puts sales closer in size to Walmart and makes the published figures of 10% of US retail sales a joke... cuts both ways though since the runway for retail is likely smaller than people think (though I think AWS is just ramping)

 

Oh I was just saying that one could probably make the argument AMZN marketplace is a better business—in terms of margins, ROC, etc—than AMZN retail. But you're right in that it's probably hard to determine that because of AMZN's somewhat opaque disclosures.

[Spekulatius]

I valued market place modeled after ebay. There is another component of amazon i.e., amazon prime video competitor to netflix. I bundled this and prime with retail as it helps the retail business. While it is difficult to argue that AMZN is undervalued, there are many sub businesses under AMZN.

 

 

I also think AMZN marketplace might be low (at least relative to AMZN retail)... I think the $ sales is the same, but AMZN marketplace must be pure profit, no?

 

I think you are double counting if you are valueing, Amazon video and Music separately from Prime..

[LongTermView]

I also think AMZN marketplace might be low (at least relative to AMZN retail)... I think the $ sales is the same, but AMZN marketplace must be pure profit, no?

 

AMZN's sales are recorded on a net revenue basis not a gross revenue basis--so whatever sales are made via marketplace only shows up as fees generated from marketplace.  From this view, AMZN's gross sales could be substantially understated.  Of course, the logistics costs for providing prime to third-party sellers shows up, but I don't know if that's net of the marketplace revenues or as a separate line item in logistics for operations in general? 

 

Seeing as Jeff's last letter noted that 2017 was the first time when more than half of the units sold were from third-party sellers, I agree that the 20-100B estimate is low.

 

The 1Q18 filing shows $9,265 million in third-party seller services sales. As SlowAppreciation said, disclosures are opaque but can ballpark what percent of this is sales commission fees as opposed to fulfillment and shipping fees?

 

[walkie518]

I also think AMZN marketplace might be low (at least relative to AMZN retail)... I think the $ sales is the same, but AMZN marketplace must be pure profit, no?

 

AMZN's sales are recorded on a net revenue basis not a gross revenue basis--so whatever sales are made via marketplace only shows up as fees generated from marketplace.  From this view, AMZN's gross sales could be substantially understated.  Of course, the logistics costs for providing prime to third-party sellers shows up, but I don't know if that's net of the marketplace revenues or as a separate line item in logistics for operations in general? 

 

Seeing as Jeff's last letter noted that 2017 was the first time when more than half of the units sold were from third-party sellers, I agree that the 20-100B estimate is low.

 

The 1Q18 filing shows $9,265 million in third-party seller services sales. As SlowAppreciation said, disclosures are opaque but can ballpark what percent of this is sales commission fees as opposed to fulfillment and shipping fees?

 

Certainly we can ballpark!

 

The schedule of AMZN's take per item is transparent, but lengthy.  And I don't know how fine the comb is when determining does product a go in bucket a or bucket b or if there might be some discretion on part of the seller?

 

My ballpark estimate on the average "commission" to Amazon is something like 14-15% of sales...a huge, but manageable number for many sellers who mark up 100% over cost.  If that's the case, Q1 saw $66B of 3rd party sales. 

 

I believe the monthly fees get parked in prime subscriptions and those largely offset retail cost of shipping? 

 

When I've ordered Amazon and seen a Walmart box show up (have seen this w/paper towels), I'm always a little shocked that Walmart would be giving up such a huge percentage of its sales to its competitor for purpose of a little advertising.  It doesn't make me want to shop on Walmart.com whatsoever but makes me think Walmart is in process of giving up (or perhaps should be?)