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Timothy Phillips  

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  • Amazon: Why The Giant (P/E Ratio) Must Fall [View article]
    Hi Jeffry,

    In the Q release (and 10k) Amazon breaks out revenue in two ways:

    First: They provide Product revenue (1P), and Services (3P + AWS + Digital).
    Second: They provide a detail breakout of revenue by Media, EG&M, and Other.

    Media + EG&M = 1P + 3P
    Other = AWS + digital subscriptions

    Therefore it is simple math to get 3P:
    3P = Service Revenue - Other
    And e-commerce total (1P+3P) = Media + EGM.
    Feb 10, 2014. 08:27 AM | 1 Like Like |Link to Comment
  • Amazon: Why The Giant (P/E Ratio) Must Fall [View article]

    Amazon's financial statements tell us exactly what 3rd party sales are. In 2013, they had $9.615B in 3rd part revenue. They record that revenue at 100% gross margin (as per Amazon 10k description). With GAAP they can record at 100% GM, because they never take "title" to the goods, they simply transfer the good to customers and record the fee/commission as revenue (typically about 11-13% of final sale price). 3rd party revenue does contain significant costs though - shipping, fulfillment, technology and G&A. While we don't know Amazon's profitability is on 3P because they don't break it out, I have estimated it to be about 29% EBIT in an article I published (

    What I find interesting is that if they do share inventory with 3rd party vendors, as has been discussed lately for efficiency reasons, wouldn't that constitute title?

    Also - due to the transfer accounting on AWS, digital and 3rd party at 100% gross margin, analysts are giving credit to Amazon for margin expansion while the bottom line remains flat at near 0% net income. They are just transferring costs from COGS to OpEx, so net margin is unaffected. You have to give Amazon credit - they know what moves markets (expanding GM%) - and they are playing it perfectly.
    Feb 8, 2014. 10:18 AM | 2 Likes Like |Link to Comment
  • Amazon's 'Free Pass' [View article]
    Jeffry - I completely agree and have written about this very topic. The balance sheet continues to worsen during good times ... wait until a minor pullback with the economy. It will get ugly quick for them.
    Jan 22, 2014. 07:56 AM | 1 Like Like |Link to Comment
  • Amazon's 'Free Pass' [View article]
    Lowering Capex does add to income over time (not instantaneously) by reducing future depreciation (assuming there is no impact on Net Income).

    What is not mentioned here is that Operating Cash Flow includes Depreciation, which is a result of prior CapEx spending. If CapEx is flat for a period of time, Depreciation ~= CapEx and has no impact on FCF. So, FCF is only impacted by the difference of CapEx to Depreciation (so a shrinking business can show positive FCF on large operating losses as well .... just like a growing Biz can show positive FCF from payable pushouts while showing income losses). Both of situations pay the piper eventually, and Amazon will as well.
    Jan 20, 2014. 08:52 AM | 1 Like Like |Link to Comment
  • Amazon Loses Money On Both Prime And Its Entire Direct Retail Business [View article]
    Yet AMEN, here we are 9 months later, and the stock is up 46% since I wrote this. And the assumption is that AMZN makes even more money on prime now than at the time of this writing (the old make up the loss per unit on volume). The fraud continues.
    Jan 13, 2014. 08:08 AM | 1 Like Like |Link to Comment
  • Reassessing Amazon Prime's Strength [View article]
    AMZN has negative Margin on Prime. Check out this article on the subject:
    Jan 10, 2014. 04:54 PM | 4 Likes Like |Link to Comment
  • Netflix - Just How Much Growth Is Required To Justify Today's Valuation? [View article]
    Hi MIchael,

    YELP has the real possibility of going belly up - much, much more so than AMZN. But, we are splitting hairs here, as all of the names we mention are in bubble territory. I did an analysis on all S&P500 stocks in terms of growth vs. FWD P/E vs. market cap (as MKT cap goes up, typically growth and FWD P/E drop ratiometrically). There is very high correlation for almost all 500 stocks, except for about 10 - that are many times larger then the rest. The FWD P/E of the 490 is a little under 15 (vs. the entire which is about 15 and a half) .. the other 10 (including NFLX, AMZN, FB, etc...) is over 100. The bubble is really limited to just a small slice of the market, and that is why in the media, where they look at the market as a whole, don't see a bubble.
    Jan 10, 2014. 09:15 AM | Likes Like |Link to Comment
  • Netflix - Just How Much Growth Is Required To Justify Today's Valuation? [View article]
    TWTR and YELP are the two most overvalued stocks in the market by far, especially on P/S basis (never mind frwd EPS) - way in the stratosphere vs. the most optimistic growth scenarios. While NFLX is overvalued, the downside is far less than TWTR & YELP if there is a hiccup in the market.
    Jan 9, 2014. 08:41 AM | Likes Like |Link to Comment
  • Apple Does Something Amazing [View article]
    Sure Ashraf, but by ARM spending the effort to license and develop the core on Intel's advanced tech tells me there may be more to it. It could be a one-off, but this is not typical of how ARM has worked in the past.
    Oct 31, 2013. 09:55 AM | Likes Like |Link to Comment
  • Apple Does Something Amazing [View article]
    Arnold - no rumor - this is fact from a press release by Altera.

    Big news for ARM, and a big capitulation from Intel.
    Oct 31, 2013. 08:52 AM | 1 Like Like |Link to Comment
  • Amazon And The 'Profitless Business Model' Fallacy [View article]
    Paulo - I think of the "investing" mantra in a different way. All of the opex expansion (depreciation and expenses) and shipping expenses are the result of growth (and not the other way around - that they spend to get the growth).

    The growth is driven by low prices (vs. cost) - in other words, they sell below total cost (they lost $574M TTM on product sales), and cover that loss with working capital increases from pushing out payables and gains from Prime+Gift Cards.

    That is how they "invest".... in aggregate they price below cost for growth. The model has worked so far, but they are at the limit on the working capital game (payables are at a limit, and inventory turns is becoming a beast) and Interest expense is getting to be an issue.

    Now -here is where the analysts are wrong. Because the opex/shipping is a result of the growth (can't slow unless growth slows), which is driven by below cost pricing, the moment they raise prices to generate earnings, the entire game stops - growth will end and the valuation will collapse.
    Oct 29, 2013. 08:28 AM | 2 Likes Like |Link to Comment
  • Amazon: Bigger, But Certainly Not Better [View article]
    Bill - you spent most of the article articulating Amazon's terrible numbers and ratios, and then you ignored all of them in your valuation and priced based on P/S. If profits, cash flow and balance sheet don't matter in the valuation, why discuss them?

    There is a reason why those number matter - and your debt ratio chart shows it - AMZN has to finance itself through liabilities because it burns cash selling products (if you remove delta working capital from FCF over the last 12 months, AMZN has burned $572M selling products). They will need to go back to markets soon for additional cash due to this.
    Oct 28, 2013. 07:58 AM | 2 Likes Like |Link to Comment
  • Amazon And The 'Profitless Business Model' Fallacy [View article]
    Nickbritt - the evidence of your theory is right in the balance sheet. Amazon Inventory days has had a steady climb from 33 days (11.1 turns) in 2010 to 46 days (7.9 turns) currently. The spreading out of warehouses and ever increasing amount of items they carry is making them very inefficient vs. when they had a decent profit last (2010).

    Much has changed since 2010 to not allow AMZN to return to 4% operating margin - fulfillment/warehouse costs, gas has doubled (shipping cost per unit is way up), massive Tech & Content expense, etc...

    If you track Amazon costs, they all grow faster than revenue - there is very, very little fixed. If they haven't hit scale by now ($74B in revs) they won't. Hard to imagine there is some magical revenue number out there that makes costs begin to scale slower than revenue.
    Oct 27, 2013. 10:00 PM | 7 Likes Like |Link to Comment
  • Accounting Change Stands To Inflate Amazon's Reported Revenues [View article]
    Harry - when a stock has no earnings there is no upper or lower bound to the price. A stock with no earnings is like leaf falling from a tree - the breeze controls its path, and you have no idea where it will end up, but you can be assured there will violent changes in its path along the way.
    Oct 25, 2013. 07:43 AM | 2 Likes Like |Link to Comment
  • Apple Does Something Amazing [View article]
    Great article Ashraf - a better to look at power in a digital system is:

    P = (Cg * n) * F * V^2

    - Cg = total gate capacitance (output C of previous gate + input C of current gate)
    - n = total number of gates in architecture
    - F = clock Frequency
    - V = Bias Voltage

    So, the number of gates in the architecture and the gate capacitance of the core technology have as large of an impact at the Freq.
    Oct 22, 2013. 12:57 PM | Likes Like |Link to Comment