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Timothy Phillips  

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  • Amazon: Is 2015 Profitability A Fantasy? [View article]
    mshapiro99: R&D cannot be slowed down without crushing AMZN's number one growth driver: AWS - R&D is almost completed correlated to growth in AWS. All AWS costs are capitalized in R&D, and part of why GM% goes up while OM% drops. Slow down spending in R&D, and AWS goes bye-bye .. then goodbye $300's for the stock.
    Feb 12, 2015. 02:45 PM | 8 Likes Like |Link to Comment
  • Amazon Can Make Money When It Wants [View article]
    Dana - "not taking inventory risk"? Have you looked at Amazon's Inventory Days Ratio over the past several years .. it has increased 20 straight quarters, and is now 48.8 days.

    As the fulfillment centers build out, no one notices Inventory Days has gotten much worse. It is worse than Walmart and Costco, and shows that Amazon now manages it daily operations less efficiently than its competitors.

    The myth that on-line retail is more efficient is BS - it can start out that way, as you ship from a small number of warehouses to the whole country, but they have already had to essentially build out "stores" to get two day shipping. Add up inventory costs, fulfillment costs and shipping expenses, and AMZN is inherently less efficient than its comp .. hence the much lower net margin.
    Feb 4, 2015. 10:18 AM | 2 Likes Like |Link to Comment
  • Amazon Can Make Money When It Wants [View article]
    If you included lease expenditures - which you need to (even the company now admits), FCF over past 5 years is a miserable $1.5B only.

    Company trades at 107x past 5-YR's of FCF!
    Jan 31, 2015. 10:22 PM | 5 Likes Like |Link to Comment
  • Amazon Can Make Money When It Wants [View article]
    Dana - there is a difference between GROSS margin and NET margin. Gross margin for CY14 was 29.5%, but NET margin was -0.3%. That operating expenses were 29.8% of sales.

    In CY13 GM% was 27.2%, NM% = 0.4%, OpEx = 26.8%

    So, while GM% rose 2.3% Y/Y, OpEx rose 3.0%.

    In fact OpEx has grown faster than GM five straight years (2010 through 2014). I would say that is a trend. The reason this is happening is that AWS and 3P sales are accounted for at 100% GM - all COGS are counted as OpEX (unlike eBay and Rackspace, etc..) If they were counted as COGS you would see Amazon GM% be flat and net margin still decreasing. It is an accounting trick to fool those who don't pay attention, or chose not to.

    BTW - they do not have guaranteed net profit on 3P sales - they only have guaranteed gross profit - they have plenty of fulfillment, admin and T&C costs on that 3P sale.
    Jan 31, 2015. 08:35 AM | 7 Likes Like |Link to Comment
  • Amazon Can Make Money When It Wants [View article]
    It is not a matter of "making money" .. the question is "how much?" Is the bar that low that they just need to break even to be worth almost $200B?

    No one debates AMZN has value, the question again is how much and the quality of it.

    BTW - they reported $2.2B in negative free cash flow for the past 12 months - good to see they are coming clean with their new total FCF measurement.
    Jan 30, 2015. 09:42 AM | 12 Likes Like |Link to Comment
  • Why I Believe Amazon Chose Debt Financing [View article]
    Amazing - the author has taken the NEED for debt as a positive. This debt adds $240M annually in interest payment to a company with a current ratio well under 1.0, and significant negative real free cash flow (including capital leases) for the past few years.

    This debt is meant to keep the company financed for the next couple of years (as they are burning through $3B per year right now) .. not for a higher ROI.
    Dec 18, 2014. 08:21 AM | 13 Likes Like |Link to Comment
  • Amazon Trades For 370 Years Of Earnings, Jack Ma Thinks It Might Not Be Here In 20 [View article]
    Paulo - it happens with straight debt as much as equity (sometimes even more so). The marketing commitment with the debt underwriting contract leads to trading desks pumping the stock along with analyst price target upgrades. This one played out just as predicted.
    Dec 4, 2014. 09:26 AM | Likes Like |Link to Comment
  • Amazon Trades For 370 Years Of Earnings, Jack Ma Thinks It Might Not Be Here In 20 [View article]
    Jaremi - that sounds about right. It has already started it sideways trade for about a year now in a very up market. AMZN was at $335 in Oct '13, while the S&P500 is up over 18% since then. While the net will be sideways, there will be lots of ups and downs (high Beta) ... a good trading opportunity for the next few years.
    Nov 25, 2014. 08:10 AM | Likes Like |Link to Comment
  • Amazon Trades For 370 Years Of Earnings, Jack Ma Thinks It Might Not Be Here In 20 [View article]
    Paulo - I did track since 2011 the forward earnings projections for AMZN in 2013.

    Here was the consensus estimate for 2013, followed by the stock price in that month (they actually did $0.59 in 2013)
    Jan 2011: $5.75, $180
    Jan 2012: $3.20, $173
    Jan 2013: $1.76, $250
    Apr 2013: $1.48, $262
    Jun 2013: $1.29, $267
    Sep 2013: $0.87, $317
    Nov 2013: $0.73, $358
    Jan 2014: $0.73, $398

    So, EPS was reduced 87% over 2 years, and that wasn't enough as they fell 90% short. And yet the stock more doubled, up 121% over that time frame.

    I am sure 2014 was a similar track, as 2015 has been as well, and every year after will be.
    Nov 23, 2014. 09:01 AM | 12 Likes Like |Link to Comment
  • Amazon: Its Business Model Explained [View article]
    Very misleading ... you mention Free Cash flow has been growing as proof of profitability, but then you point to a chart that is of Operating cash flow. FCF = OCF-CapEx. If you put a chart up a FCF, you would see it has been declining for the past 5+ years. TTM FCF is just $1B, down 65% from 5 years ago.

    Amazon is valued at 150x FCF ... that is a return on sales of 1% and a return per share of 0.7%. Not very good at picking investments are they? Fire Phone is another example.
    Oct 28, 2014. 08:03 AM | 4 Likes Like |Link to Comment
  • Why Amazon Has No Profits (And Why It Works) [View article]
    Capex is a normal and large cost of business for most companies every quarter. It covers both normal operating needs in replenishing assets, and new investments for growth. Since depreciation is a nice view of the run rate avg of capital costs you can compare to the current capex spend make a judgment on how much is investment vs. replenishment.

    AMZN is growing at 20% per annum, and probably only half their business is capital intense .. that would mean you would expect Capex to run about 10% higher than depreciation to replenishment existing biz and to sustain their projected growth.

    Check what it has been (less the HQ spend) - around 10% higher. This means capex has not held FCF back, and there is no magic above avg growth coming for AMZN from capex.
    Sep 8, 2014. 08:55 AM | 2 Likes Like |Link to Comment
  • Why Amazon Has No Profits (And Why It Works) [View article]
    Benedict,

    The article implies that capex will decrease as a % of OCF, but that is not the case. The capex increases are nearly all AWS and content expense - which drives the "other" revenue growth and prime. W/O the increased Capex AWS could not grow. The fulfillment center build-out is largely leased and is why fulfillment continues to grow as a % of revenue (and it is a real cash expense - and will continue to grow). The increase in shipping costs as a % of revenue are structural, and will continue.

    It is not a good idea to look at OCF only, which includes depreciation added back in, and ignore Capex. Depreciation is running at about the level of capex for the past 2 years (if you exclude the $1.4B for the new HQ). So, your argument of recent huge Capex driving low FCF is misleading. They really only replaced depreciation with a small increase - which is what they have to do with a cloud and content business.
    Sep 6, 2014. 09:26 AM | 3 Likes Like |Link to Comment
  • Amazon: It Gets Weirder And Weirder [View article]
    The shares price turnaround was tied to the bullish 3P SSS revenue report by Channel Advisor in before the market open on 8/13 (that started the run). July was the fastest growing month for AMZN in over a year (40.4%), while eBay struggled.

    This of course should have been expected by analysts as 3P comparisons have been hampered by the eBooks accounting change for the past year (AMZN has been shifting 3P sales to 1P at 8x the revenue). Q3 is the 1st Q in which we have an apples to apples Year on year comparison again. This means that 1P will have headwinds in Q3, and 3P will back to normal.

    Paulo has talked about this for quite some time, but to no avail. This 25 point move up the past 2 weeks has all been based on a bad assumption.
    Aug 28, 2014. 08:22 AM | Likes Like |Link to Comment
  • Amazon: It Gets Weirder And Weirder [View article]
    Ahhh .. just like old times ... they spend $1B in cash on a money losing operation that only generates $50m/yr in revs pushing their current ratio from 1.0 to 0.88, and they are rewarded by the stock increasing $8, or $4B in market cap. That is a 4x return on their cash in 1 day. Who needs profits or buying back stock when that kind of return is available?

    If this doesn't feel like 2010 I don't know what does.

    Every Q their stock gets crushed when investors look at actual performance. then the 90 days in between fluff and pump comes out and everyone dreams of profit that will never come.
    Aug 26, 2014. 11:34 AM | 7 Likes Like |Link to Comment
  • One Thing Is Odd [View article]
    Gary - if Price is truth, AMZN is not doing so well relative to the market in 2014, so something is different. AMZN is down 16.7% in 2014, while the S&P500 is up 8.5%. Not very good Alpha (-25%) over an 8 month period.
    Aug 25, 2014. 08:04 AM | 1 Like Like |Link to Comment
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