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Timothy Phillips

 
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  • The Bank Of Amazon: How Long Will Suppliers, Sellers And Customers Keep The Doors Open? [View article]
    BigJ - it is already starting to happen. EBay is getting very aggressive in lowering costs to increase growth of their marketplace .. they are trying to take advantage of AMZN's recent issues (especially after eBay had similar issues in 2010 it wants far in its rear view mirror).
    Mar 19, 2013. 05:07 PM | Likes Like |Link to Comment
  • Why Do Analysts Use eBay Non-GAAP EPS For Estimates? [View article]
    rw1270 - eBay in this case removes amortization of acquired intangible assets (not depreciation of hard assets). This is from paying more than book value for an acquisition or for IP. They had to pay cash up front, but don;t want to take the earnings hit. The interesting thing is that it continues to grow over time, so they continue to add intangible assets, and they want us to ignore that in the P/E calculation ...
    Mar 19, 2013. 04:57 PM | Likes Like |Link to Comment
  • The Bank Of Amazon: How Long Will Suppliers, Sellers And Customers Keep The Doors Open? [View article]
    I actually don't see that happening, nor does it need to happen for the stock to really tank. They should make a little money this year, but struggle in cash flow based on the numbers in this article.

    As the year goes on CY13 and CY14 estimates will need to be taken down significantly, as it will be obvious that opex will outpace revenue (for all of the reasons Paulo and I have proven), minimizing any improvement in Gross margin. My model shows CY13 needs to be reduced by at least 20% and CY14 by at least 30%. The magnitude of that drop is not as important as the why above because that will reduce the outlook for net margin in the out years, which should crush the multiple (that is where the money is).
    Mar 19, 2013. 03:50 PM | Likes Like |Link to Comment
  • The Bank Of Amazon: How Long Will Suppliers, Sellers And Customers Keep The Doors Open? [View article]
    News just out on eBay - the pressure continues on AMZN 3rd party as a follow to my article:

    eBay (EBAY +1.4%) is eliminating listing fees for most items and simplifying its commission fees, as it tries to sustain Marketplaces' resurgence and slow down Amazon's (AMZN -1.2%) rapid 3rd-party sales growth. Lower-margin items such as electronics will sport lower fee rates than higher-margin items such as clothing. eBay claims the moves, its first fee changes since 2010, will provide more transparency for merchants, who have complained of overly complicated pricing. Yesterday, Reuters reported of discontent among Amazon merchants over rising fees.
    Mar 19, 2013. 01:04 PM | Likes Like |Link to Comment
  • The Bank Of Amazon: How Long Will Suppliers, Sellers And Customers Keep The Doors Open? [View article]
    Max value - I have done about every type of financial analysis and scenario on AMZN (my models from previous articles have nailed gross margin, net margin and revenue growth very closely over time - based on oil prices, product mix trends, monthly retail sales and e-commerce sales) - and my fair value for this stock is in the range of $110 right now. I see no reason why if the chart turns turn bearish, it will not head to that level (or even undershoot it). If it can happen to apple, it can happen to AMZM. The stock has been above $250 for so long we are losing our perspective on how bloated this pig is. If it breaks $220 and holds, it may be a good time to short as the bear will be out of the cage and will run.
    Mar 19, 2013. 11:18 AM | 1 Like Like |Link to Comment
  • The Bank Of Amazon: How Long Will Suppliers, Sellers And Customers Keep The Doors Open? [View article]
    Yes, AMZN has been doing this for years to make up for their operational ineptness. While there sheer size has not paid returns on pricing power as bulls have predicted, it has allowed them to squeeze suppliers. At 76 days accounts payable outstanding, it has reached a tipping point. Even if they keep the days flat now it will have a huge impact on their current ratio (already at 1.1) by the end of the year and put them in a very bad position when they need to go back to the debt market.
    Mar 19, 2013. 10:13 AM | 1 Like Like |Link to Comment
  • The Bank Of Amazon: How Long Will Suppliers, Sellers And Customers Keep The Doors Open? [View article]
    AMZN gross margin will continue to rise due to how they do their accounting - they set AWS and 3P at 100% GM and the costs are stuffed into Tech & Content (AWS server depreciation & maintenance + streaming depreciation content costs) and in fulfillment (3P transaction & FBP costs). As I have written about in the past AMZN articles, fulfillment and tech & Content costs will increase faster than revenue due to this (and faster than gross margin increases) - therefore net margins will continued to be pressured over the next several years. Add to this the FCF issues they will see based on this article, and they are in some trouble.
    Mar 19, 2013. 09:56 AM | 2 Likes Like |Link to Comment
  • Amazon: Primed to Undercut Wal-Mart [View article]
    Guru - you have to condense your thoughts down to value. What are each of the positives you mention worth vs. the negatives? Have you thought through what AMZN has to execute to be worth $260?

    Let's assume AMZN can reach its potential in 3 years (2015).
    - If Revenue grows at 20% per year, 2015 revs will be $61*(1.2^3) = $105B.
    - At 20% rev growth, with EPS growing a little faster potentially, give 'em a P/E of 25 (3x Appl in that rev/growth range). They would need $10.40 in EPS.
    - $10.40 in EPS is 4.7% Net Margin

    That is almost 5% net margin (vs. 1% analyst estimate for 2013) in 2015 for the stock to be worth $260 today .. meaning, you get no gain on your Long investment for beyond perfection performance.

    Another way to look at it ... If they hit 3% net margin (my math shows that is a huge stretch) on $105B in revs in 2015, and you want a 10% return per year on the stock, you should not pay more than $126 today.

    So, at $100 or so I would agree you comments lead to a bullish context as those positives would provide value at that price. At $260, those positives are not nearly enough.
    Mar 19, 2013. 07:06 AM | 2 Likes Like |Link to Comment
  • Amazon Is Cheaper Than You Think [View article]
    Worse than using actuals is to assume that future performance will be significantly better than prior performance. AMZN has proven time and time again (nearly every Q that transpires) that future performance looks a lot like the past - great revenue growth, low margin, no earnings, and cash flow generated by pushing out payables and paying their employees with bloated stock RSU's.

    There has been no correlation @ AMZN of revenue growth to profitability. In fact, one could argue if it did exist it would be negative.
    Mar 18, 2013. 08:10 AM | 1 Like Like |Link to Comment
  • Amazon Is Cheaper Than You Think [View article]
    Money Investor, revenue growth is not what a multiple should be based on - should be based on Free Cash Flow growth. Check out the FCF growth of those companies - eBay and WMT have much better historical FCF growth. eBay potential for future FCF growth is much greater as well - check out the news this morning on AMZN is getting sued by a group of on-line merchants for AMZN payables policy. AMZN FCF had grown through WC as their operations continues to lose money. The music will stop on that very soon as payables has been pushed as far as it go already - and may now is in danger of having to shrink. They will need to go get more debt if that happens.
    Mar 18, 2013. 07:11 AM | Likes Like |Link to Comment
  • Amazon Is Cheaper Than You Think [View article]
    Josh,

    Operating cash flow is not a useful measuring stick, because you are ignoring required investment to maintain the business operations (capex). So you remove D&A expense and ignore Capex .. this will get you in trouble quickly.

    If you want to use cash flow - you need to look at Free Cash Flow. even this is not perfect as it ignores dilution on an absolute basis (that is why I like to measure w/ FCF per share) and can get skewed significantly by short-term WC changes (AMZN is the master of this, so you need to be careful here).

    Let's compare eBay and AMZN FCF as they are very similar competitors:

    Fee Cash Flow from 2009-2012
    AMZN $2.9B, $2.5B, $2.1B, $0.4B
    eBay: $1.3B, $2.0B, $2.3B, $2.6B

    Amazon FCF is dropping due to capex investments (like a $1.4B HQ in 2012) and opex growth. Let's remove the $1.4B HQ 1-time investment in 2012 and use a $1.8B FCF number for AMZN.

    AMZN trades at 66.1x FCF ($119B MKT Cap / $1.8B FCF)
    eBay trades at 25.2x FCF ($65.4B Mkt Cap / $2.6B FCF)
    WMT trades at 22.4x FCF ($242.2B MKT Cap / $10.8B FCF)

    This is apples to apples and shows you that AMZN is about 2-3x overvalued in comparison to eBay & WMT. A very high price to pay for marginally higher growth over eBay in 2013.
    Mar 17, 2013. 07:28 PM | 1 Like Like |Link to Comment
  • Amazon's Q1 Will Be Impacted By Sluggish Key Segment Retail Sales [View article]
    HS, Yes JP Morgan was left out, and can't be a coincidence.

    Debt issue included Morgan Stanley, Goldman Sachs, HSBC and Merrill Lynch. MS has been the biggest ridiculous pumper (as I have written in other articles).
    Mar 15, 2013. 08:11 AM | Likes Like |Link to Comment
  • Diamond Foods Q2 Results: Gross Margin And Free Cash Flow Impress [View article]
    Analysts typically have a range of +/- 10% on their ratings so that they don't have to change the rating every week or even every day. So, with a PT of $15, he will keep a hold rating from $13.50 to $16.50. If it moves above or below that he will either re-evaluate his PT, or alter his rating.
    Mar 13, 2013. 10:19 AM | Likes Like |Link to Comment
  • Diamond Foods Q2 Results: Gross Margin And Free Cash Flow Impress [View article]
    Not exactly a ringing endorsement by Jeffries, but at least they recognize that Mgt's plan is working (after not believing it in the past):


    - Jefferies analyst Thilo Wrede noted, "We are raising DMND to Hold from Underperform with a new $15 PT as our bear thesis of combined revenue and margin pressure did not play out. Even though DMND continues to face revenue losses, the company apparently cut enough unprofitable SKUs and reduced costs to enhance margins, an event that we had underestimated. Together with the potential for eventually covering the remaining 29% of short interest, we see only limited downside."


    Read more: http://bit.ly/Z1yNMh
    Mar 13, 2013. 10:03 AM | Likes Like |Link to Comment
  • Diamond Foods Q2 Results: Gross Margin And Free Cash Flow Impress [View article]
    I really enjoy DMND Snack brands (Pop Secret and Kettle) and feel that portion of the business is worth significantly more than the total today as the Nut business is dragging down the financials. The Snack business is a $450M, 33% GM business growing in the upper single digits w/ margin expansion. That should generate a P/S of about 1.5 ... or $675 market cap. That is $29.22 alone (23.1M shares) ... They should be able to generate about $185M in FCF over the next couple of years ($44M from Oaktree options, and $70M/yr from operations), which will reduce the debt and interest to a point where the value of the snacks should hit potential, and the Nut business should be worth the remaining net debt. That would yield a min $30 target by FY15.
    Mar 13, 2013. 07:58 AM | Likes Like |Link to Comment
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