David Tsao

Amazon Upgraded, Target Set at $100

They will increase market share and revenues. However, their margin picture won't change any time soon. The analysts will continue to focus on revenue growth and their digital strategy. No one can break out how much their digital strategy is bringing in to the bottom line except for the people that work at Amazon.

Margin growth is the only thing that should be propping up their current share price, and that growth isn't going to happen for a while.

Amazon Still Looks Overvalued

It will be interesting to see what Apple comes out at their big confab. Rumors aside, if they are developing some new product they'll have it under a tight lid so as to not cannibalize their current iphone / macbook sales. If there is anything material, it will suck away some of the hype from the recent Kindle DX. Margins not there yet.

3 Reasons Why Mahaney Thinks Amazon Can Go Higher

You have to be careful following Mark Mahaney. He had a price target of $119/share back in Jan/2008 and was throwing out unfounded Kindle sales projections drawing analogies to iTunes business model recently.

A quote from Mark back in Jan/2008
"Margin Expansion alone could drive double-digit EPS Growth"

3-months later in Apr.2008 his research comments for AMZN,
"The margin outlook is disappointing"

Amazon continues to operate with low margins. They've had impressive top line growth in this environment, but until margins expand to justify the valuation, I'm staying away. You'd be wise not to digest too much of Mark Mahaney's analysis.

Something Huge Is Happening with Amazon

The Kindle program isn't broken out on their quarterly reports. Basically no one has any idea what if anything of material effect this is having on margins. I give kudos to AMZN for breaking new ground with Kindle and their AWS program, but until they reach economies of scale their margins will continue to run thin. As an investor it is still to early to tell.

Amazon Sales Up While Most Retailers Suffer

It's still to early to tell what's going on with Amazon. Whether its visits/month, comscore readings, or Oprah pumping up Kindle, you need to focus on the company's operating margins which have been historically low. The company has done very well with respect to increasing the value perception with Amazon Prime/free shipping amongst its customer base. It works well in these times. However they've done so well that they can not remove this program without taking a massive order volume hit. Their shipping programs cost the company roughly 2.5% of Net Sales over the trailing 6 quarters. It's been creeping up quarter to quarter and nibbling away some bits from their operating margins.

It's an upward trend. They will have to up their revenues to keep their margins, or face interesting choices:

- Jack up the Amazon Prime membership
- Reduce free shipping coverage on specific product categories
- Drop the program all together (this would hurt them pretty bad, doubt they would do this but you never know)

What would do in Bezos' shoes?

E-Commerce Q4: Anything Better Than Armageddon Will Be Good News

People have been covering AMZN's top line a bit much. The company's operating margins are razor thin and always have been. In this environment, there isn't much buffer for mistakes.

Amazon: Was That Its Bottom?

DC Housing Bear,

Do you remember Mark Mahaney's call on AMZN back at the start of the year? It was in the 100's. He also predicted increasing operating margins for 2008.

Know How Many Kindles Amazon Has Sold? 240,000

Mark Mahaney also had AMZN price target for $119/share back in January. His forecast model back in May assumed there would be an adoption rate at 50% of what iPod's numbers when they first came out. At the end of the day, these targets may come to fruition, but the the forecast wasn't based on any sound reasoning.

Amazon.com Likely to Remain Range-Bound for Time Being

omooc,

AMZN sold their European DVD rental business, while at the same time experienced a reduction in gross margins due to price promotions, Amazon Prime, and other factors. Breaking it out, they went from 27.1% in gross margin to 25.8% in North America, and grew 20.8 to 21.5% from their international channel.

Amazon: Transitioning Into a Technology and 'Cloud Services' Company

If you want to "get it" in terms of grid computing, there's another good book that makes the electric grid analogy called "The Big Switch" by Nicholas Carr.

The one fault that I find with the electric grid analogy, is that what businesses and consumers leave behind during the industrial revolution and what they woud leave now.

Leaving steam for the electric grid, versus leaving my blade server for a fully managed service environment present different incremental gains in terms of business continuity. Even if services like saleforce.com, Amazon's AWS, Google Aps, get to a level 99.999999% up time, there are still several hurdles to cross, some of the biggest challenges being:

- data security/privacy
- the up front systems integration cost to hook up company data/processes into to the "cloud".
- new players need to enter the market to provide sufficient competition to open up my choices so as to not risk placing my company's critical systems/data into one company's platform.

It is rather risky to accumlate Amazon stock solely on their AWS service (or the potential for it). Other market entrants are going to enter this picture, and until the Fortune 500 switch to cloud computing, this is going to be a very long evolution.

I give Amazon kudos for making impressive revenues consdering the economic environment, however they continue to see margin compression with their promos/discounts.

Is Amazon.com Really Worth Over $70 a Share?

What did you guys set your your SG&A, and COGS as a percentage of top line revenues? My assumptions back in Janurary were slightly different, and I came up with a $60/share valuation. My assumptions gave AMZN every benefit of the doubt, and put set them up under very optimistic scenarios. Almost half of their revenues come from outside the US. 6 months ago, I thought their overseas operations would be somewhat immune to the credit crisis unfolding here. It's a different story now.

Although they see high margin channels through 3rd party sellers, AMZN has extremely tight margins for the overall business. With such tight margins and rising input costs, companies that operate on tight margins are going to feel it. I'm not sure what type of agreement Amazon has with UPS or USPS, but at some point Amazon is going to eat rising costs of shipping, or pass it on to the customer.

Either option isn't great. Customers for the most part, associate AMZN with low cost or free shipping.

There are too many other factors to outline here. I'm not sure what Citi (Mark Mahaney) and Goldman see that I don't with their bullish calls on Amazon.

And please, let's not have another analyst try to compare the Kindle to the iPod.

Two different customer segments, two different purposes.

Is Amazon's Free Cash Flow Overstated?

The change in net operating working capital is a factor in determining free cash flow available to the firm. William's argument about extending Current Liabilities out over several periods can affect FCF since it is a component in determining working capital. However, attention should also be paid to AMZN's LT debt obligations and the structured lines of credit agreements they have. I still think AMZN is overvalued, margins are thin, and there will be no improvement for some time to come.

Another thing with respect to AMZN is to watch out for Citi's analyst Mark Mahaney... his research and calls on AMZN are a bit off the wall.

Amazon: Forget Analysts, Kindle Still Irrelevant

You couldn't have written it any better. The focus and "noise" should be around the company's operating margins, not the Kindle.

Citigroup Makes Bold Projection on Amazon's Kindle Based On...Well...Guessing

I've been keeping my eye on Mark Mahaney for a few months now for amusement. This Kindle estimation probably has to take the cake. Unless AMZN breaks out segment revenues in more detail from their digital initiatives, AWS, and Kindle, how can you extrapolate out to 2010???

I think Mark is trying to claw his way back to credibility or to keep a positive spin on AMZN after his missed calls early in early January when he made a bold prediction that AMZN would hit $119/share

www.tengrandchicago.co...

Mark... read the 10k/10Q's and tell me how you can justify these estimates for the Kindle? Maybe you have connections into the supply side for Kindle equipment, although I highly doubt it.

Behind the Myths of Cloud Computing

These are very general statements about cloud computing usage going out to 2010-2012. Even if the research comes from Gartner, there are major adoption issues at the ground level for the engineers that actually build the applications.

You can see my full comments about this subject here:
seekingalpha.com/artic...