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Alex Cho

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  • Missing The Point On Amazon's Margins [View article]
    However, I think I can figure out a way to find the exact gross margin figure for services and physical products.
    Feb 19 05:39 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    Paulo, I'm busy working on an article right now. I think I can see where you're going with this. However, I'm standing by my original assessment.

    This is because, you're saying that product COGS are relatively flat, as a percentage of revenue. But it's possible that the revenue figure has increased enough so that COGS hasn't increased, but margins have increased.

    It's simply infeasible for Amazon to dedicate more cash to operating costs without an increase in gross margins from product sales. Amazon isn't the type of company to issue a whole lot debt to invest in unit labor costs, but would rather borrow cash to pay for short-term account receivables, which we can verify from looking at the balance sheet.

    Furthermore, Amazon is doing the accounting appropriately for its business as it's primary source of sales revenue is from retail, and not from cloud. Because of this fact, unit labor is considered an operating cost, and not a part of cost of goods sold. However, I believe that the businesses gross margins have improved as a result of rising prices, as the impact from services would still result in similar net operating margins, leaving no room for Amazon to invest into the cloud business. Therefore, to invest into the cloud business Amazon marked up its product prices and used the sliver of margin to pay for operations relating to the cloud. Amazon never earns a profit. Therefore allocation of capital has to come from somewhere. The only logical solution would be a higher price on some of its retail products with costs flowing to cover operating costs.

    That's my final assessment.
    Feb 19 05:16 PM | 1 Like Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    Paulo, when you increase the price of a product, your margin increases without any impact on COGS.
    Feb 19 03:18 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    Amazon has one of the fastest scaling data center businesses, and driving cost efficiency isn't that difficult based on what actual experts in the field of IT have been saying.
    Feb 19 03:17 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    To be specific Virtual private server is a dedicated server running a bit of a different platform from the virtual machine, but both serve the purpose of offering a mix of privacy and some scalability.

    The cloud however is data that's stored on a cloud of servers. There's no dedicated rig for your server.

    All three are a form of IaaS, but the fastest growing category is the lowest cost method. Of course cloud is just an overly generalized term. But when we refer to cloud, we're talking about the type that Amazon currently deploys through its web services.
    Feb 19 03:13 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    The cloud doesn't run on either.
    Feb 19 03:10 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    Wow, did you know that Instagram and Vine use Amazon Web Services? Amazon obviously has lower gross margin figures than the ones i had calculated. I said that in my article.

    You're really smart you know that. With data usage expected to skyrocket in the future, I'll let you take the title of expert.
    Feb 19 02:32 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    You've got to be joking. Saying, that I don't understand the cloud. No that's simply not true. Go back and sit in front of a math class.

    I gave you a run rate projection of three different businesses with three different impacts on accounting near identical what Paulo said anyway. Whether I had said 90% or 100% gross margin would have been a negligible impact.

    Anyone with a strong enough of a background in accounting and math can figure this stuff out. I don't need to plaster 200 articles onto Seeking Alpha to make a point on what I do or don't know about financial accounting or financial statement metrics.

    While I respect Paulo. I don't think he arrived at the same conclusion as me. Too dependent on accounting. I get the accounting, I'm trying to figure out whether or not Amazon did or did not mark-up products.

    All roads lead to Amazon having in fact marked up on some products, and used the pre-tax cash to pay for expansion opportunities in its data-warehousing business aka virtual cloud, IaaS, AWS. Not every form of investment is done in the form of CAPEX, part of the investment is in human capital. In services COGS is labor hours, in retail COGS is the price at which a physical product is bought.
    Feb 19 02:28 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    That's highly unlikely. As I had mentioned already, every service business has to recognize some form of cost for production, whether it be labor hours or the like. Because the bulk of Amazon's retail sales involve physical product, and services represent a small fraction, and factoring in current growth rates (key word, you're isolating the impact of the increase in one division, but exclude the rising impact of the other).

    What i showed was a system of equation throughout my article. It's easier to mark-up a product to drive a meaningful improvement in margin, than to expect service sales to drive all the improvement in margins.

    I paid close attention in accounting class mind you. And I already used the comps from other businesses. Even pure-cloud players have some form of COGS.

    Sure you could say that Amazon has a different system for "accounting." The only difference here, is I'm trying to find the real margin improvement, and not the one that was arrived at by using accounting that applies to a retailer to drive up gross margins for a cloud company.

    What my analysis concludes is that the services weren't the only reason gross margins went up. But at the same time, even with gross margin improvements, the remaining money gets spent on pre-tax operating expenses. With low net income. However Amazon avoids paying taxes due to depreciation credits, so it's able to continue to invest.
    Feb 19 02:20 PM | Likes Like |Link to Comment
  • Ignore The 3D Printing Naysayers For Now [View article]
    Yes, Organovo has a problem. Many believe that the technology of printing whole organs won't reach market until 2020-2030.
    Feb 19 02:13 PM | 1 Like Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    No Paulo that's extremely unlikely, as I have already calculated that with a gross margin at 90%, and AWS generating $15 billion, the impact is still negligible. The real gross margin improvement came from a combination of media, and product sales. 3P could be a part of it, but that's still related to its retail operation. 3P would need to scale much further to have any meaningful impact. So I stand by my original assessment.
    Feb 19 12:03 AM | 1 Like Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    I was talking about gross margins, not net profit margins. Two different things.
    Feb 18 10:39 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    No, look very closely at what I have written. The numbers don't lie. The gross margin figure improved, because they increased the prices on physical goods. The gross margin impact from cloud is pretty negligible, and even with other services, still negligible. I'm fairly confident Amazon priced its products higher in order to cover operating costs, which still translates into zero net income.
    Feb 18 10:38 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    To make a long term forecast on the value of the business, I may consider working out future operating margins, and net profit margins.
    Feb 18 09:00 PM | Likes Like |Link to Comment
  • Missing The Point On Amazon's Margins [View article]
    No, what I'm saying is that cloud in general is a high gross margin business. Many of the costs associated with a cloud services business is related to operating costs and not on cost of goods sold.
    Feb 18 08:59 PM | 4 Likes Like |Link to Comment
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