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thibaud  

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  • Halliburton And The Future Of Energy [View article]
    It appears that the oilfield services and related technologies segment generally is undervalued now, maybe due in part to investors' neglect. I'm long HAL and GEOS and hoping for dips in CLB so I can enter a position there as well.
    Mar 6, 2013. 09:42 PM | 1 Like Like |Link to Comment
  • Healthcare Check-Up: An Easy Portfolio For The New Paradigm [View article]
    Nice work, thanks!

    Do you have a specific view on MDSO's competitive position, pricing power, growth opportunities, its customers' degree of bargaining power etc?

    Thanks again,
    T
    Mar 6, 2013. 09:38 PM | Likes Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    The point is that it's not bizarre or evidence of some vast conspiracy that the market at this point is pushing AMZN's price up and AAPL's price down. I don't necessarily agree with the market's take on Amazon's AWS gambit, but there's some logic to the basic idea at work here, that Amazon will generate increasing ROIC in coming quarters due to the shift toward AWS as their engine of growth of profitability.
    Mar 6, 2013. 09:20 PM | 1 Like Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Actually, I do know that the business models involved in provisioning data warehouses and corporate data centers - see EMC ORCL HPQ IBM NTAP etc - are enormous, hugely profitable, and ripe for disruption by a company that knows how to run data center operations efficiently and at massive scale.

    Amazon can slash its margins in this segment and still reap huge returns, because the gross margins for the major players are north of 60%. Amazon threatens to do to enterprise IT companies what it did to brick and mortar retailers - and enterprise IT is far more profitable than retail ever was or is.

    Amazon's head of AWS has recently announced that Amazon has new offerings that will cut the cost of deploying a data warehouse by 90%. As Andy Jassy said,

    “So, if you ask yourself: Why are these old-guard technology companies so desperately trying to get you to buy the private cloud? I think the answer is the economics of what we are doing are extremely disruptive for old-guard technology companies. These are companies that have lived on 60 to 80 percent gross margins, for many, many years....

    "High margin businesses have been around forever in lots of industries, and they are obviously a very valid and successful business model. It is just not ours. It is radically different to run a 60 to 80 percent gross margin business then a high volume, low margin business.

    "And, if you believe like we do, that the vast majority of computing is moving to the cloud over the next 10 years, it stands to reason that cloud computing is going to be a high volume, low margin business. If you run a high volume, low margin business … you think about your pricing differently, you think about your cost structure differently, you think where you spend your innovation cycles differently…. Now, Amazon, every business we run is a high-volume, low-margin business. We like those businesses. We are very comfortable running them. And we have that DNA. I think most of the old-guard technology companies, who are running 60 to 80 percent gross margin businesses, don’t like those businesses and that’s why the are pushing the private cloud so hard, because it doesn’t disrupt their existing business models.

    "But, I think those companies over time will see, that the world is moving in the direction that AWS is pointing. And then it will be interesting to see how many of those companies will be good at operating high-volume, low margin businesses, because you don’t flip a switch over night and become great at operating high-volume, low-margin businesses. They are completely different operating characteristics.”
    Mar 6, 2013. 07:18 PM | 2 Likes Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Your model must be assuming much lower expectations for AWS's growth and operating profit contribution, as well as the extent of Amazon's likely competitive advantage period, than Wall Street and the tech community have for this company and this business.
    Mar 6, 2013. 05:26 PM | Likes Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Eric,
    Amazon is transforming itself into a provider of cloud computing solutions to enterprise companies. This is an excellent business with exponential growth, high margins, and good ROIC for a company that already has an enormous in-house asset base of data centers and data center professionals.

    Amazon is well-positioned to succeed and has a focused CEO who has a lot of credibility.

    The market appears to be blessing his vision, and the high price must be embedding expectations of a sharp improvement in the company's ROIC due to the shift from etailing to enterprise-focused cloud computing.
    Mar 6, 2013. 05:23 PM | Likes Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Hello Paulo,

    Amazon actually comprises two fundamentally different businesses. All the action is in Amazon Web Services, AWS.

    I'm no expert on their business, but it's obvious that AWS is growing exponentially, has margins that are 10x higher than in Amazon's existing business and almost certainly allows Amazon to leverage many of its existing capital investments. AWS has generated more than half of the company's revenue growth in recent years and will soon be generating over 90% of its growth.

    Ben Schachter of Macquarie is widely reputed to have good Amazon sources and solid info on the AWS business. he projects AWS revenues as follows:

    2013 $3.8b
    2014 $6.2b
    2015 $8.8b

    Schachter estimates AWS to be worth $66 per share on a stand-alone basis.
    Mar 6, 2013. 05:10 PM | Likes Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Mr Iyer - I don't know you, or know why, exactly, you see the need to insult strangers, put words in their mouths, or respond to specific and well-understood valuation concepts by repeating one isolated data point, but I really don't see the need to continue further with this discussion.

    If you want to do your own ROIC calculations, go for it, and see whether those calculations yield a different ROIC trajectory from 2008 to 2012 and TTM. It's highly unlikely that they will.

    Regardless, I wish you the best with your investment strategy, and leave you to direct your playground insults, badgering and repeated references to one-half of one small part of a proper valuation analysis toward others on these boards.
    Mar 6, 2013. 04:29 PM | 1 Like Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    "blather about the future"

    Ah, the future. Yep, I confess, that's what interests me, that's where my attention is focused - especially as it diverges sharply from the recent past (cf inflection point comments, above).

    "seem to be convinced that the market is mis-pricing Apple, but not Amazon"

    No, I think the market embeds its future expectations for ROIC in each company's stock price. ROIC is of course not the only driver of stock price movements - I mentioned the need for portfolio managers to rebalance their extremely unbalanced portfolios - but ROIC encompasses many of the key drivers of a company's long-term success, so it's a good starting point.

    Re AMZN, I don't understand the strategy well enough, or the competitive landscape well enough, to have a strong conviction on it.

    But it appears that investors believe the ROIC trajectory for AMZN in the future will be significantly more positive than it has been in the past. Rather than indulging all sorts of spleen, as many here do, about the wickedness/stupidity/s... of other investors, I'm trying to determine what the sources of those investors' beliefs might be.
    Mar 6, 2013. 03:13 PM | 1 Like Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    "not just cherry-pick the numbers that suit you"

    It might help you to calm down a bit and look in the mirror. Unlike you, I'm looking at both the numerator and the denominator: the economic returns Apple generates in a period, and the amount of capital Apple invested to generate that return. Apple's problem is that the latter is now increasing faster than the former. In 2008-2010 it was the reverse.

    The reason for this declining (albeit from sky-high levels) ROIC is simple and obvious to any objective observer: Apple's competitive advantage began to shrink in late 2011 and 2012.

    All the news from the marketplace suggests that it will continue to shrink in 2013 and 2014.

    It is extremely unlikely that Apple's future product releases will generate the kinds of economic returns that the iPhone did in the days when no one else had a touch screen and a vast ecosystem of apps and apps developers.

    Investors who focus on this leading indicator - and the hedge funders who exited en masse in 2012 certainly do - will not be long AAPL until/unless clear signs appear that the company's year-on-year ROIC trend is going to reverse itself and become positive again.

    Others reading this thread may want to look carefully at this discussion of ROI analysis from CSFB's Mike Mauboussin - pay close attention to "common error No. 4" on p. 6 - excerpt:

    "The second reason for underestimating investment stems from a simple failure to explicitly link growth and investments via ROI. Analysts frequently project growth (sales and margins) independent of investments...."

    http://bit.ly/ZqGH0u
    Mar 6, 2013. 01:54 PM | 1 Like Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Bezos is deliberately changing the company's business model. Whether it's the right strategy or not, investors appear to be giving him time to make it work.
    Mar 6, 2013. 11:21 AM | 1 Like Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    I won't bother responding to your sarcasm and playground taunts, but for the readers who want a serious discussion, the crucial fact is that Apple has reached, and passed, an inflection point. Amazon, whatever one thinks of it, has not.

    Of course Apple has stellar EBIT and ROIC. But their yoy growth has peaked. Any way one wishes to calculate it, the trend in Apple's yoy change in ROIC is the same: the yoy change grew sharply from 2008 to 2010, peaked in late 2011, and has been falling since. It will continue to fall as ASPs decline and Samsung and other competitors relentlessly eat away at Apple's market share, brand leadership/"cool" factor and pricing power.

    The fundamental business conditions have changed, their CAP is shrinking, and their ROIC is now starting - it will take time, sure, but it is starting to revert toward the mean.
    Mar 6, 2013. 10:03 AM | 1 Like Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Enterprise IT purchasing cycles are measured in years. Consumers swap out one gadget for another in a matter of months.

    Here's AAPL's return on invested capital over the last several years (year ending Sep 30):

    2009: 33%
    2010: 37% (increase year-on-year of 12%)
    2011: 44% (19% yoy increase)
    2012: 46% (3% yoy increase)
    2013 Trailing twelve months: 33% (-24% yoy decrease)

    Get the picture? Apple's moment has passed. Their ROIC is reverting to what it was 3 years ago. Their stock price will follow.
    Mar 5, 2013. 09:34 PM | 1 Like Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Steve Jobs had spectacular hits, and also spectacular misses. The latter caused his own board to fire him and his company to verge on bankruptcy. Google any news source you like from the NeXT era of the 1990s and you'll see him described as a slippery character.

    My point is very simple: Apple has reached an inflection point. It is a mature company in a ferociously competitive market whose growth is slowing dramatically.
    Mar 5, 2013. 08:39 PM | 2 Likes Like |Link to Comment
  • The Massive Underperformance Of Apple Vs. Amazon [View article]
    Amazon's valuation today owes mainly to the value that investors put on its move into cloud computing.

    Again, these are two very different businesses. Apple is a maker of gadgets. Amazon was seen as an online retailer but is now perceived primarily as an enterprise IT provider of cloud computing solutions.

    Enterprise IT is not only twice as large as consumer electronics, and less susceptible to whimsical changes in customer buying patterns (aka short-lived fashion trends), it is also in the very early stages of a profound disruption. Apple's disruptive moment has passed. They capitalized on it, brilliantly, but the hyper-growth phase has come and gone. Hyper-growth in the shift toward IT-as-a-Service and Platform-as-a-Service is still to come.

    That disruption is of course the shift to IT resources used and provisioned as utilities. It is a far larger opportunity than the one Apple competes for, and we are at an earlier stage, with only a few % of this trillion-dollar opportunity having been realized.

    I am not a fanboy or a hater of either company, but the market is not irrational. Investors have re-evaluated the growth trajectory of Apple while retaining a positive view of the growth opportunity available to Amazon's shift toward cloud computing. There is sound evidence supporting this view.
    Mar 5, 2013. 08:31 PM | 2 Likes Like |Link to Comment
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