Seeking Alpha

Timothy Phillips

 
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  • A Look Into The New And Improved Amazon.com Estimates [View article]
    My model has the same results on GM%, opex and net margin (same trend maybe different magnitude). Also have been studying in great detail the shipping expense phenomena in regards to gas cost, fulfillment position in regards to the customer vs. fulfillment cost ... interesting results as well. My confidence continues to grow in my DCF model of their costs (and growth) based on their business model and market dynamics. Last Q my model was within 1c on EPS.

    They will have a headwind this Q with fuel costs - lets see if analysts pick up on this impact. I will write something later in the Q on what I have found as the Q fuel numbers become more solid.
    Feb 6 07:53 AM | 1 Like Like |Link to Comment
  • A Look Into The New And Improved Amazon.com Estimates [View article]
    3P growth has to be squeezing 1P sales as well. if you assume 11% commission on 3P sales (same as eBay who actually reports it), then Amazon now has 34.0% of North American e-com Market, while eBay has 16.2%. Those two alone have more than 50% already! Add in a growing on-line Walmart, Target, Apple and Best Buy (+ Goog and FB entrance) and most of the market is absorbed. Hard to imagine that Amazon can exceed the 14-16% e-com growth much longer since taking share is probably no longer easy (low hanging fruit is gone), which means outsized 3P growth will cannibalize 1P. It is already happening by the numbers and will continue.
    Feb 6 07:37 AM | Likes Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    On your first point we simply don't know, but what I do know is that Fulfillment expenses have tracked Paid Unit growth with a very specific correlation and with high R2.

    On the second point, that is my point, that since fulfillment costs and shipping costs are both outpacing revenue, (because those costs are not dropping as fast as ASP), it leads to less net margin %. Now, if volume is growing sufficiently, they may be able to generate more net margin $ (not proven yet), but I am confident that the % will be less. This also jives with JB's comments about %;s not being important.

    While that is OK (every business should strive for more money in their pocket every day, not a higher % per se), the issue I see is that the company is being valued on hitting a mid to high-single digit net margin % ... it just doesn't look possible with the cost structure and strategy.

    If more money in their pocket means 1.5% net at $150B in sales in 2017, that is only $2.25B in earnings (~$4.80 a share). While that is more money in their pocket, do you want to pay 55 times 2017 earnings today on a company growing at 10-15% at point?
    Feb 5 02:02 PM | Likes Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    Last night they followed up that Thursday night discussion and said to stay short as the rally has run out of steam and still has further to drop with confidence. They spent quite a bit of time trashing the chart and the valuation.
    Feb 2 08:08 AM | Likes Like |Link to Comment
  • A Look Into The New And Improved Amazon.com Estimates [View article]
    Analysts increased AMZN target P/E by 22.7% in 2013 (now 211 from 172) and 14.7% in 2014 (now 86 vs 58).
    Feb 1 08:55 AM | 1 Like Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    yep on your last point, and the fact is that fulfillment has increased faster than total paid units sold for 4+ years (regardless of FBA%) and shipping cost has grown faster than e-commerce revenue, even though gasoline costs have come down over the past year and fulfillment centers have gotten closer to the customer. These are facts that do not bode well for the model.
    Jan 31 08:21 PM | Likes Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    AMZN does fulfillment (and shipping) for a large portion of 3P (i.e FBP program). We don't know that percentage because AMZN does not disclose that, but it is reasonable to assume that it is a high %, and if so, then my analysis holds. The data further supports this because fulfillment tracks total paid units (not 1P paid units) very tightly (and in fact consistently exceeds it by a small margin). This tells you a majority of 3P must use AMZN fulfillment, or else they have a more significant problem with fulfillment costs on their hands then I point out.

    Also, on ASP declines: whether it is mix or same product pricing, they are both an issue when you have high fixed costs in place in Opex (and shipping). Evidence points to mix in Q4 as sales tax had an impact on big ticket items. Smaller ASP items generate less net profit for retailers (and certainly ones that have to fulfill and ship them).
    Jan 31 05:25 PM | Likes Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    I actually think the tone of the analysts reports on Tues after the call was a direct result of the stock pump to mid 280's AH's. They didn't want to look tone deaf to the market reaction and searched for the one positive among the litany of disasters in the results. Live by the sword, die by the sword, as they don;t look so good today as AMZN now trades below the true closing value on Tues ($268).
    Jan 31 02:26 PM | 1 Like Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    It is all about expectations. My model was very close on op margin, so I expected that, but I what I did not expect the reaction to it on such slumping sales. While op margin was up over a terrible CY11 Q4, it was down vs. 2 years ago (half as much), which was down vs. 3 years ago. Op Margin is pathetic on a magnitude basis (1.9% - pre interest, pre-other, and pre-tax) , especially considering it was Q4 where they make about 40% of their annualized profit in a "normal year". My point is that analysts are treating like a vindicating breakout Q ... how about they get back to the op margin of 2 or 3 years ago before they get too excited.
    Jan 31 08:53 AM | 2 Likes Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    The lack of focus is what will burn amazon, as they try to outspend competitors in a multi-front war.
    Jan 31 07:51 AM | Likes Like |Link to Comment
  • Amazon's Growth Is Shutting Down [View article]
    Longs - doesn't it bother you that they won't answer even the most basic questions on the call? Our skepticism is natural if a company won't provide the basics - there is no reason they can;t answer the impact of sales tax, guide us to understand where shipping and fulfillment expense is headed, tell us KIndle units, etc... (how about a target operating model once the investments are complete).

    For a company this size to be as ambiguous as a start-up is very frustrating - they either don't want you to know because it will crush them, or they are so arrogant to believe we don;t need it and will buy the stock anyway. The typical reason we are not told is that the imagination of blind investors / analysts is much more positive than reality - and they will continue to remain smug until the stock is punished. It would be a very rare case if this ends well.
    Jan 31 07:43 AM | 1 Like Like |Link to Comment
  • Amazon's Growth Is Shutting Down [View article]
    I agree jhesr about RAX valuation ... it shows that even with the bubble we have in cloud companies today and apply that valuation to AMZN, they are still overvalued to that bubble analysis by 35% !!!!
    Jan 31 07:30 AM | 1 Like Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    You are right Paulo, fulfillment expense growth has exceeded paid unit growth over the last couple of years (therefore way outpacing revenue gains) - even though 3P offers a mix of outside fulfillment.
    Jan 31 07:26 AM | 2 Likes Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    Thanks for kind words HS,

    My model calculates Fulfillment expense based on its strong correlation to paid units sold / e-commerce ASP and gross margin% to mix in 1P/3P/AWS + a model I have built on shipping expense based on paid units & gas cost (there is a formula I have developed). Nothing too complex but it has predicted fulfillment expense and GM% fairly accurately over the past year (better than the analysts for sure) and drove my confidence in tracking the metrics above as leading indicators of where the AMZN model can end up once they become more "steady-state".
    Jan 31 07:24 AM | Likes Like |Link to Comment
  • Amazon Missed On All 5 Key Metrics: Business Model In Jeopardy While Analysts And Investors Are Pleased [View article]
    Thanks J.

    I have traded both sides of NFLX (I was a shorter from $200 down to $90), than a buyer when it went into the 50's and got out at $85 (missed this latest run). I do extensive research on the company, and may write something soon on my thoughts. While I love the product, I couldn't even imagine paying $170 /sh based on what we know.

    While I am an avid LNKD user, I do not follow the stock. I will check out your article on NFLX.
    Jan 30 06:40 PM | Likes Like |Link to Comment
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