Seeking Alpha

Psycho Analyst

 
View Psycho Analyst's Comments BY TICKER:
  • How I Explain Amazon's Stock Performance [View article]
    Paul,

    Amazon's free shipping over $X offer is what gets people buying the larger ticket items. You go in to buy the Widget you need that is $9.99 then to save shipping, you think, hmmmm, what else do I need? And often youbend up buying some more expensive item you might otherwise have bought at the store.
    Nov 5 04:44 PM | Likes Like |Link to Comment
  • How I Explain Amazon's Stock Performance [View article]
    gig49,

    I couldn't agree with you more about the irony around that lawsuit.
    Nov 5 04:22 PM | Likes Like |Link to Comment
  • How I Explain Amazon's Stock Performance [View article]
    Paul,

    Amazon is drop shipping so the suppliers are doing the packing and shipping at their warehouses. This is also on the model Amazon uses for selling "long tail" books which are fulfilled by Ingram or Baker & Taylor. They merely forward the order and pocket their cut. This is why they often split orders and ship them in different boxes.

    The advantage for suppliers is that the shelf space for their products has been shrinking as WMT and Target convert more floor space to groceries. Where there used to be 10 items to choose from in a product class there may now be 3 or 4 displayed on a shelf.

    Amazon has all 10 items available, which allows the supplier to keep a broader product line in inventory and keep customers buying them. Shoppers who can't find a favored item to replace one that wore out or was used up will often go to Amazon rather than buy from the limited choices available on shelves.

    So the shrinking number of hard good items available in stores is a golden opportunity for Amazon and motivates vendors to work with them.

    So while I fully agree with Chuck that the numbers make no sense for an investor who invests based on fundamentals, I would not bet againist this business long-term.
    Nov 5 04:20 PM | 1 Like Like |Link to Comment
  • How I Explain Amazon's Stock Performance [View article]
    duckenguyenphotography,

    This strategy worked with print books that were impulse buy items before those huge discounts. Why shouldn't it work with housewares, small electronics, underwear, trinkets, etc?

    People already go out to see stuff on the shelves and then check their phones to see if the same item is available at a discount that makes it worth waiting. The more expensive the item the greater the incentive. This is a big problem retailers are trying to address, but they have all that overhead and they don't have that FFO. Amazon has already got a lot of the electronic sales that used to go to the big box.

    As far as how long it takes, who knows? I'm just glad we made our pile in publishing taking advantage of Amazon's seduction of vendors in the early days, as it's going to be much tougher for small vendors going forward.
    Nov 4 06:42 PM | 2 Likes Like |Link to Comment
  • How I Explain Amazon's Stock Performance [View article]
    As someone who has been profiting as a vendor dealing with Amazon since they opened their doors, I have a pretty good idea what it is that they are doing that motivates institutional investors to stick with them.

    Amazon is investing that huge cash flow into doing to the entire retail market exactly what they did to the retail book business. It has worked frighteningly well until now.

    Here's what they did with books: First Amazon got customers to abandon other retailers by selling a lot of product below cost. For example, my company, published a trade paperback in 2008 that Amazon's algorithms automatically discounted 30% for two whole years, even though my company was only giving Amazon a 20% discount.

    Amazon was not only selling each copy of our book at a 10% loss, it was also paying shipping for those orders thanks to the "free shipping on $25 order" policy. We sold some 15,000 books through this arrangement.

    Who would buy a book for 30% more at Borders if they could buy it on Amazon cheap? The answer: Not enough people to keep Borders in business. By 2011 Borders and Waldenbooks, a chain that had had stores in just about every American county, was gone. B&N still clung to life but half the store was selling calendars and games, not books.

    Once the book retailers had been disposed of, Step 2 kicked in. Amazon backed off the deep discounting for all but the top selling print books . They recently raised the purchase amount needed to qualify for free shipping.

    Thanks to their predatory pricing, there are now thousands of towns in the US today that have no bookstores at all. People who want print books will either have to buy a lot of them or pay for shipping. They have no real choice.

    Eventually there will be no free shipping at all. You might be able to pick up the book you bought at an Amazon network of local storefronts. Or you will pay the full freight. And since Amazon's volumes let them force the shippers to give them very good shipping prices, when you pay for shipping you will be paying a lot more for that shipping than Amazon is. More profit for them.

    Amazon also will demand far deeper discounts from publishers and other vendors and kick them off the site if they don't offer them. No publisher can sell without Amazon nowadays. To total sales of all the other retailers don't begin to add up to what Amazon can move. Eventually that may be true for hard goods.

    Amazon has done something similar Kindle e-books, with great success. They began by offering publishers extremely sweet deals, for example, a 70% cut of the sales price to sell their e-book via Amazon. Hardback book publishers were getting paid the cover price of their $30 books while Amazon sold them as e-books for $9.99. Not surprisingly, Amazon quickly rose to dominate the e-book marketplace.

    Next they offered publishers more incentives to sell ONLY with Amazon--for example, e-publishers who sell only via Amazon get paid twice as much as those who don't for sales in India and Mexico. At some point Amazon will make it prohibitively expensive for vendors to sell on other platforms. Since most publishers I know find that Amazon outsells Nook, Kobo and the Apple Store by a factor of something like 8, Amazon will wipe out those competitors.

    Not content with owning the US market, Amazon has moved over the past few years into building a presence in the rest of the world, two. Just in the past 3 years they have gone from selling e-books in just the US and UK, to selling in Germany, France, Italy, Spain, Japan, Canada, Mexico, India and Brazil. Almost every few months they open a new country to Kindle sales.

    And notably, when they do, they will only offer 70% of the take from sales in these countries to publishers who who sign an agreement to market their e-books exclusively through Amazon in ALL markets including the U.S..

    Eventually, when the other big e-vendors are gone, Amazon will start lowering those juicy publisher payments to the 30% that is what they originally offered when Amazon first launched the Kindle. That will make the e-books very profitable as the actual cost of transmitting the ebooks and managing them, once the software is all in place is minimal.

    Amazon is following the same discount-drain the competition--and then profit model in the selling of hard goods. Same day delivery is another thing they have put most of their money into recently and may be the death knell for brick-and-mortar stores like Best Buy and Target that can't sell at a loss the way Amazon does.

    When that deep discounting and free postage kills that competition, and Amazon has a local presence everywhere around the world, you can be sure they will start squeezing vendors and charging buyers enough to make Amazon a very tidy profit.

    And by then, rebuilding a brick and mortar competitor to Amazon once Target and Best Buy and the rest have been squeezed out will be expensive beyond any company's resources except, perhaps, Walmart.

    But Walmart's web site is not much more than a faint hope right now and they have alienated so many vendors by playing hard ball that they might find their vendors seduced to "Amazon only" deals.

    So as you can see, this is a very long game Amazon is playing, but it has been working brilliantly until now (as that FFO shows.) And those who understand the model understand the lack of profit.
    Once the build out for World Domination has been completed, the FFO will turn into profits with extremely low margins. And the size of the monopoly and its world wide scope will be such that no regulator can limit it.

    Disclosure: I own no Amazon stock except for what might be hidden in various mutual funds I own.
    Nov 4 05:40 PM | 15 Likes Like |Link to Comment
  • Kindle Is The Fire That Burns Brightest For Amazon.com [View article]
    Amazon does not release actual sales numbers, and a huge percent of Kindle 'sales' are treated as sales by the software but sold at a price of $0. Many publishing statistics turn out to be mere guesses--euphemistically described as estimates.

    Their relentless forcing of prices downward has led to a large percent of Top 100 ebooks are selling for $.99 - $1.99. These low prices have devastated publisher bottom lines to where many mainstream books get little or no editing or copyediting today. So increasingly what buyers download in Kindle format is crap. Meanwhile the newer Kindles are just android tablets, distracting readers with all the web frittersphere and cutting down further on reading time and attention span. This does not bode well for books, long term.

    So Amazon has definitely killed their golden goose. I don't see much moat in the rest of what they sell. Not a company I'd trust with my retirement money.
    Mar 8 02:25 PM | 2 Likes Like |Link to Comment
More on AMZN by Psycho Analyst
COMMENTS STATS
403 Comments
957 Likes