AMZN - Amazon.com Inc.

[Jurgis]

Godfather says hi.

[JRM]

Oh no, they are going to the mattresses.

 

It must be a huge market. It looks like Mattress Firm has a store (or sometimes 2) on every street in every city in America.

 

I'm curious how any Amazon shareholders rationalize this kind of business practice as good.  They would rather undercut 3P retailers selling mattresses on their platform (likely AWS or potential AWS customers as well) and instead sell low margin mattresses.  It seems like the former is a better business model (higher margin) and wouldn't be viewed by the regulators as anti-competitive. It's like Amazon is trying to not make money.

 

I know the online mattress companies typically have a sales portal through their website as well, but most people go straight to Amazon to check reviews.

[Liberty]

Oh no, they are going to the mattresses.

 

It must be a huge market. It looks like Mattress Firm has a store (or sometimes 2) on every street in every city in America.

 

I'm curious how any Amazon shareholders rationalize this kind of business practice as good.  They would rather undercut 3P retailers selling mattresses on their platform (likely AWS or potential AWS customers as well) and instead sell low margin mattresses.  It seems like the former is a better business model (higher margin) and wouldn't be viewed by the regulators as anti-competitive. It's like Amazon is trying to not make money.

 

I know the online mattress companies typically have a sales portal through their website as well, but most people go straight to Amazon to check reviews.

 

To know we'd have to know more variables. If they think they can sell a lot more Amazon brand mattresses than the 3P vendors would because of the lower prices and because of the brand, then the lower margins can be compensated by turnover.

 

I just had a quick look at the margins of Purple, one of those mattress startups, and right now they're at 44% gross margins, up from the 23% in 2015 (so I don't know if they'll keep rising). Seems like there's a bunch of "your margin is my opportunity" in there for Amazon to have really good prices yet keep pretty high margins, especially if they know they can get to scale really quickly because of the existing transferable brand recognition and distribution.

[walkie518]

Oh no, they are going to the mattresses.

 

It must be a huge market. It looks like Mattress Firm has a store (or sometimes 2) on every street in every city in America.

 

I'm curious how any Amazon shareholders rationalize this kind of business practice as good.  They would rather undercut 3P retailers selling mattresses on their platform (likely AWS or potential AWS customers as well) and instead sell low margin mattresses.  It seems like the former is a better business model (higher margin) and wouldn't be viewed by the regulators as anti-competitive. It's like Amazon is trying to not make money.

 

I know the online mattress companies typically have a sales portal through their website as well, but most people go straight to Amazon to check reviews.

 

To know we'd have to know more variables. If they think they can sell a lot more Amazon brand mattresses than the 3P vendors would because of the lower prices and because of the brand, then the lower margins can be compensated by turnover.

 

I just had a quick look at the margins of Purple, one of those mattress startups, and right now they're at 44% gross margins, up from the 23% in 2015 (so I don't know if they'll keep rising). Seems like there's a bunch of "your margin is my opportunity" in there for Amazon to have really good prices yet keep pretty high margins, especially if they know they can get to scale really quickly because of the existing transferable brand recognition and distribution.

foam is very cheap

 

one hopes there isn't an off-gassing scandal as cost-cutting becomes the primary lever for the companies with less scale...

[Liberty]

Free shipping for everyone in the US during holiday shopping this year:

 

https://www.businesswire.com/news/home/20181105005293/en/Amazon-Expands-Free-Shipping-Holiday-Season/

[dwy000]

Wonder how much of that was offense in getting people to use the platform and hope they stick around, vs defensive in that Walmart is very aggressively marketing free 2 day delivery with no membership fees.  If my Prime membership was coming due over the next month or two I'd hold off until January to renew.

[Liberty]

https://www.wsj.com/articles/amazon-plans-to-split-hq2-evenly-between-two-cities-1541446552

 

Probably a shrewd move on many levels.

[Liberty]

Wonder how much of that was offense in getting people to use the platform and hope they stick around, vs defensive in that Walmart is very aggressively marketing free 2 day delivery with no membership fees.  If my Prime membership was coming due over the next month or two I'd hold off until January to renew.

 

I'm sure there's some of that too. Retail has always been a competitive business, but in this case, what Amazon and Walmart and maybe a few others can do, not many others can do nearly as easily.

 

In cloud there's more than enough TAM for AWS, MSFT and GOOG. In retail, there's more than enough TAM for AMZN, WMT, COST, etc. Tiny niche players can do well by specializing at being the best at their niches. It's those in the middle that should get the squeeze.

[Jurgis]

If my Prime membership was coming due over the next month or two I'd hold off until January to renew.

 

I would not. Prime now has tons of other benefits that I'd lose if I did not renew.

[fareastwarriors]

Citi will move 1,100 workers earlier than planned to make way for Amazon in NYC

 

Citi has been consolidating its New York area staff anyway, moving workers to its headquarters in glitzy Tribeca and other locations.

 

The tower at One Court Square, bearing Citi's name on the top, opened nearly 30 years ago and has been home to various Citi units.

 

https://www.cnbc.com/2018/11/13/citi-will-move-workers-earlier-than-planned-to-make-way-for-amazon-nyc.html

 

 

so generous of citi...

[Liberty]

https://www.geekwire.com/2018/amazon-web-services-introduces-custom-designed-arm-server-processor-promises-45-percent-lower-costs-workloads/

[rkbabang]

"24 Amazon Workers Hospitalized After Robot Punctures Bear Spray In Warehouse

One worker was in critical condition and 30 more were sickened and treated on the scene after a robot-related accident."

https://motherboard.vice.com/en_us/article/qvqe85/24-amazon-workers-hospitalized-after-robot-punctures-bear-spray-in-warehouse

[Jurgis]

https://www.theverge.com/2018/12/19/18140799/amazon-marketplace-scams-seller-court-appeal-reinstatement

 

As a comment I'm just gonna post my favorite quote-of-the-day from FB thread:

 

People hate facebook, but I think ultimately people hate people.

[Shooter MacGavin]

Does anyone that knows this story well believe the stock is on sale these days around $1450?  If so, what's your rough estimate of the normalized PE multiple? By my rough math, they would earn $50-$60 per share roughly if they stopped investing (very rough).  Thank you.

[walkie518]

Does anyone that knows this story well believe the stock is on sale these days around $1450?  If so, what's your rough estimate of the normalized PE multiple? By my rough math, they would earn $50-$60 per share roughly if they stopped investing (very rough).  Thank you.

The problem with any conglomerate is you need to look at each division separately, and of course, every conglomerate trades at a discount to its underlying value

 

If AWS were independent from Amazon, it's not hard to mark that business at a $1tr valuation since every cloud business that is traded is dwarfed by AWS (or runs on AWS).  Sure, Microsoft is trying to catch up and there is plenty of room, but AWS had prima facie advantage and isn't giving it up.

 

From another angle, when finding the underlying value for retail, coming up with an idea for the gross sales could be very helpful to understanding how Amazon's model differs from Walmart, for example, since Amazon reports net sales (gross retail sales plus net marketplace sales).  Since online sales are growing at a rate that is 4x US retail, one needs to bake this into those figures as well.  Online sales cannibalize brick-and-mortar, but consumers are only going to spend so much in total.  The growth runway there, for example, is less than in advertising.

 

The DCF will need to make assumptions about the future.  I would track each piece out 5 years, come up with sum of the parts, then discount 15% to come up with value.  Not sure present value models work when sales grow over 20%? 

 

[Shooter MacGavin]

Does anyone that knows this story well believe the stock is on sale these days around $1450?  If so, what's your rough estimate of the normalized PE multiple? By my rough math, they would earn $50-$60 per share roughly if they stopped investing (very rough).  Thank you.

The problem with any conglomerate is you need to look at each division separately, and of course, every conglomerate trades at a discount to its underlying value

 

If AWS were independent from Amazon, it's not hard to mark that business at a $1tr valuation since every cloud business that is traded is dwarfed by AWS (or runs on AWS).  Sure, Microsoft is trying to catch up and there is plenty of room, but AWS had prima facie advantage and isn't giving it up.

 

From another angle, when finding the underlying value for retail, coming up with an idea for the gross sales could be very helpful to understanding how Amazon's model differs from Walmart, for example, since Amazon reports net sales (gross retail sales plus net marketplace sales).  Since online sales are growing at a rate that is 4x US retail, one needs to bake this into those figures as well.  Online sales cannibalize brick-and-mortar, but consumers are only going to spend so much in total.  The growth runway there, for example, is less than in advertising.

 

The DCF will need to make assumptions about the future.  I would track each piece out 5 years, come up with sum of the parts, then discount 15% to come up with value.  Not sure present value models work when sales grow over 20%?

 

Sure.  That is a valid way to look at Amazon and I don't disagree. That is a Sum of parts exercise that we're all familiar with and a method to value Amazon.

 

I was merely asking what people assumed a run-rate earnings multiple, ex growth investments, was today.  Every public company that is profitable trades at some earnings multiple, conglomerate or not.  I guess asked differently, what do people think their economic earnings are, ex investments?

[Guest cherzeca]

@shooter. I just don't look at amazon like a normal investment.  it has optionality like no other business in the world.  amazon could touch all of its customers in ways we haven't considered, becoming a nonbank finance company, an advertising behemoth etc.

 

there is no way Bezos is going to hunker down and run company without massive future investment in businesses not engaged in today that relate to its massive (and appreciative) customer base.  those investments are likely going to provide value to its customers and hence the company.

 

so I buy amazon when on sale (not often!) and hold.  KISS. 

 

 

[bookie71]

Is Amazon loosing it's edge?  On my last two orders, it took over 14 days for them to be filled, even after paying for one day shipping on one and two day shipping on the other.  They did refund the shipping, BUT only after I squaked.

I have started ordering from their competitor and it is cheaper and shipping is free for normal and about 1/2 (of Amazons ) for one day

[Foreign Tuffett]

Jeff and MacKenzie Bezos are divorcing.

 

https://twitter.com/JeffBezos/status/1083004911380393985

[oddballstocks]

Is Amazon loosing it's edge?  On my last two orders, it took over 14 days for them to be filled, even after paying for one day shipping on one and two day shipping on the other.  They did refund the shipping, BUT only after I squaked.

I have started ordering from their competitor and it is cheaper and shipping is free for normal and about 1/2 (of Amazons ) for one day

 

Had this revelation about a year ago.  Since then annual spend on Amazon has gone from deep in the thousands to whatever the cost of Prime is per month.

 

I had one shipment languish for a week before shipping.  I called and argued with Amazon that it wasn't two day, asked for refunds.  They said two day referred to when it was placed on the truck locally.  My item was in a warehouse in Washington and had to be transported to PA.  They said moving goods between Amazon warehouses didn't count against the two days.  It was frustrating and soured me.  Most of my "two day" orders are on the 3-4 day realm.  I live about three miles from the downtown of a major metro of 2 million people and two hours (both east and west) of their giant regional distribution hubs.

 

It isn't that their logistics stink, I think they just don't care anymore.

 

The other nail in the coffin is the broken search.  We spent an entire night on Amazon looking at kids Halloween costumes.  Most are junk or repeat listings with slight variances with different prices.  In the end we became frustrated, gave up, and purchased something locally for less than what online would have been.  Could have saved those hours.

 

My general rule of thumb is I prefer to support a local merchant if their price is within 10-20% of online.  Over the past two years most merchants have started to match online prices, so there is no penalty.  The upside is if I have issues I can take it in person and it gets fixed or replaced quickly.

 

I have family that lives in a city with two hours deliveries.  They also have cash coming out of their ears and the amount of junk they buy constantly is blinding.  If Amazon can rope high earning families into this lifestyle of "Alexa can you order me bananas in two hours?" and somehow make money on tiny deliveries they have a bright future ahead.  Said family orders anything and everything, all on a whim, all the time. They are a poster family for the American consumerist disposable lifestyle.  If I had to guess I'd say they're in the $1k-2k per month range on Amazon purchases.

[Jurgis]

I might be counterexample, but I am in totally opposite camp from oddballstocks and bookie71.

 

Amazon was and is great. We buy a lot of stuff there.

 

Yeah, some two day shipping is not two day, but I don't care mostly and IMO it's always disclosed when you buy. I may have one or two deliveries that took longer but most actually take shorter. Well, I usually also take the coupon offer for slower shipping and the slower shipping is faster than they promise.

 

Yeah, for some items search is not easy. Trivial example: we were looking for magnifying glass. This is totally Chinese-made-low-quality-item-hell: tons of Chinese "brands", tons of (fake?) reviews, etc. Ultimately we chose something, ordered it and it seems OK. Similar experience with car phone holder.

 

OTOH, you can find good stuff. E.g. I bought a high quality Japanese bread knife for a very good price. Was shipped from Japan. Took 3 weeks to arrive. It's top notch bread knife. Pretty sure it's not fake or knockoff and IMO way better than a lot of locally sold (or Amazon sold) American crap ;). Cut off half of my finger with it, but that's another story.  ::)

 

Yes, there are items that we buy elsewhere. Food pricing still varies a lot: from below Walmart/local-supermarket to 2x Walmart/local-supermarket. You either have to comparison price or just eyeball. We don't buy clothes on Amazon because it is tough to evaluate the quality and sizes. YMMV though. When we had to get a gaming computer within two days, we went with local Microcenter. We almost always price compare anything expensive.

[bookie71]

It's not the two day shipping, but not filling the order for a week or two (one time over a month).  Shipping isn't the problem.  Also the pricing isn't the best.

[rkbabang]

I might be counterexample, but I am in totally opposite camp from oddballstocks and bookie71.

 

Amazon was and is great. We buy a lot of stuff there.

 

Yeah, some two day shipping is not two day, but I don't care mostly and IMO it's always disclosed when you buy. I may have one or two deliveries that took longer but most actually take shorter. Well, I usually also take the coupon offer for slower shipping and the slower shipping is faster than they promise.

 

Yeah, for some items search is not easy. Trivial example: we were looking for magnifying glass. This is totally Chinese-made-low-quality-item-hell: tons of Chinese "brands", tons of (fake?) reviews, etc. Ultimately we chose something, ordered it and it seems OK. Similar experience with car phone holder.

 

OTOH, you can find good stuff. E.g. I bought a high quality Japanese bread knife for a very good price. Was shipped from Japan. Took 3 weeks to arrive. It's top notch bread knife. Pretty sure it's not fake or knockoff and IMO way better than a lot of locally sold (or Amazon sold) American crap ;). Cut off half of my finger with it, but that's another story.  ::)

 

Yes, there are items that we buy elsewhere. Food pricing still varies a lot: from below Walmart/local-supermarket to 2x Walmart/local-supermarket. You either have to comparison price or just eyeball. We don't buy clothes on Amazon because it is tough to evaluate the quality and sizes. YMMV though. When we had to get a gaming computer within two days, we went with local Microcenter. We almost always price compare anything expensive.

 

My experience is closer to Jurgis than to the others.  The expected arrival date is always listed before you buy it.  So you always know what to expect.  I can't tell you the number of times I search online and off, sometimes for days on more expensive items, and I go back and order it from Amazon even if it is slightly more expensive there.  I know the Amazon return policy is so much better than most places that I just feel safer ordering things from them.

 

As for the hour it takes to find some things.  How long does it take you to get your keys, get in the car, drive to your nearest walmart, find a parking spot, walk into the store, find what you are looking for, picking the one they have because you have no other choice, walk to the registers, wait in line, check out, walk back to your car, drive back to your house, carry the item back into your house. 

 

Unless walmart is right next door, you know exactly where the item is in the store, and there are no lines at checkout, it is very unlikely that you can do all of that in much less than an hour.

 

[PLynchJr]

Between work and home I place over 200 orders a year from Amazon (and many dozens at other online retailers).  Amazon was awesome and still is awesome.  Best overall place to shop without question.

[Liberty]

Between work and home I place over 200 orders a year from Amazon (and many dozens at other online retailers).  Amazon was awesome and still is awesome.  Best overall place to shop without question.

 

I've been buying things on Amazon since about 2002, and I think I've bought more from them every single year sequentially with a pretty big acceleration after we became Prime members. Hard to think of another retailer where I've bought more every year. Costco has a nice share of spending too, but it's more constant from year to year.