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Green Mountain's (GMCR) growth story is dead, says CNBC's Herb Greenberg. The company's CEO all...
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Wednesday, May 2, 2012, 7:49 PM ETGreen Mountain's (GMCR) growth story is dead, says CNBC's Herb Greenberg. The company's CEO all but said so in its conference call, saying “After several quarters of robust adoption, we now expect a more moderated growth trajectory going forward for both Keurig brewer and K-Cup pack sales.” "Moderated growth trajectory going forward?" Those are definitely not words you want to hear from the CEO of a high-flying growth company. Shares -40.6% AH.
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A few key points are, they're going to lose the patents to K-Cup later this year and competitors will force margin compression. Many are expecting significant compression. Additionally, Tilson mentions sketchy accounting practices that pulls forward future sales to make the present look a whole lot better than it actually is. GRPN tried to do something similar to that. Point is the P/E is only accounting what is known, but there are plenty of highly probably unknowns that can wreck current growth projections.
Correction on that, -40% in the AH only. Getting crushed on a fraction of the volume of a regular trading session really hurts. The worse part is, those who use stop-loss orders are going to be out in the worst way possible.
Regards.
See my point?
AMZN is essentially the WMT of our time.
What is the cost of this item at WalMart?
http://amzn.to/KRrimb
My point is that when AMZN reaches $440B in revenue they will have the same OM as WMT does now, operating at a lower GM, thus offer more competitive prices to the consumer.
AMZN's VARIABLE operating costs below gross margin are higher, per revenues, than either WMT or COST. And yes, they are variable AND growing faster than revenues. Shipping&Fulfillment, for instance, are massive.
Here's what I wrote a while ago:
"Amazon.com's operating costs ex-cost of sales/revenues come to 22.5% of sales (Q1 2012), whereas WMT's are 19.2% (2012 FY), and Costco's (http://bit.ly/uKeeku) are 9.5% (Q1 2012). So Amazon.com competes on price while not being a cost leader. That's not a recipe for success over the long term."
What they lose on one particular unit to Wal-Mart they make up on extreme high margin items. Even if those items have very low volume.
Wal-Mart is doing just fine and isn't going anywhere but one day Amazon will match their volume (not even remotely close now but remember newspaper readership vs. Internet adoption in the 1990s and how the newspapers laughed at the idea that their models will fail in the face of the growing Internet?)
If I'm a Wal-Mart executive then I may not be worried when I look at Best Buy's slow fade out but I'm paying close attention!
1) They don't make it back as we see in the aggregate earnings;
2) The sheer diversity might, itself, push margins down.
I've seen how you deny reality with SHLD so I'm not going to play this game with you again so I'll just say your numbers don't add up but maybe THIS thesis will work out for you...unlike Sears Holdings.
Good luck!!
Geeez. The one denying reality isn't me. the margins are near non-existent.
I won't defend AMZN's valuation, but you're comparing apples to oranges. GMCR makes money on basically one item, the K-cup, which by the way comes off patent this year. How is a comparison to the behemoth Amazon comparable in any way, other than they are both considered high growth companies?
Amazon has:
* Declining earnings;
* Declining revenue growth guidance;
* Declining earnings guidance;
* Declining opearting cash flow TTM;
* Plunging free cash flow TTM;
* Declining cash;
* Huge threats, like a change in paradigm on digital goods sales;
* Need to collect sales taxes that will hit revenue growth and margins;
* Google about to launch cheap tablet that's a lot better than AMZN's
* And yet trades at a MUCH higher valuation than GMCR.
So yes, they are comparable - in the sense that AMZN is MUCH worse off than GMCR, at this moment, even if it hasn't plunged already.
Also, AMZN guided the next Q down 90% - don't believe me, check the consensus estimates, they went from $0.20 to $0.02. And 2012 was down as well, by as much as GMCR guided it down.
They make money off ONE product. The barriers to entry go down to almost nil as soon as those K-cup patents come off. Margins on K-cups will be absolutely destroyed and many other companies will certainly be making their own Keurig's. Add in the SEC probes for accounting issues and the consistent swings in inventory management every quarter (which is either due to poor management or shady accounting) and I have no problem justifying their current valuation.
There are little barriers to entry in online commerce as well - certainly the brand makes more difference in GMCR's market, than it does in online commerce, where it's all about price.
AMZN has issues with the IRS, SEC, and also due to inventory management as well - just witness how they haven't been ordering Kindle eReader parts inventory for 4 months now, meaning they had a huge glut of the devices. AMZN also uses accounting gimmicks to make numbers, just witness what LivingSocial did this very quarter, to the tune of $248 million.
You can talk about low barriers to entry in e-commerce all you want, but why after this many years is AMZN still the leader, with little to no barriers to entry? GMCR is the leader because of patent protection. Do you see a tangible threat to AMZN in the e-commerce world within the next 4 months that could cut margins by 50-75% on their products? Because that is what is going to happen to GMCR in September...
I am not defending GMCR, only showing that AMZN is doing quite a bit worse than it. The patent might be a problem, but be aware that in GMCR's market the most important barrier is brand, not a patent. Other brands could launch capsule drinks already, being able to launch k-cups is not a huge difference, though obviously since they are probably too expensive, it might attract competition.
AMZN has already seen a 50-75% drop in operating margins, you don't need to wait for the next 4 months. And funny enough, estimates for the next Q were recently cut by 90% ... eheh.
Cut their retained earnings growth in half and you get 55%.
...and their price to earnings growth ratio jumps from 0.06 to 0.13?
Unless Tilson can prove massive accounting fraud or if losing the patent sends sales down 70% I don't know how GMCR is not a buy under $30.
Looks like we have a screaming growth stock turned into a growing value play here...
The JAN13 calls will drop from 21 to 10 (!).
Looks like a great buy.
(or better yet sell naked at the money puts to take advantage of the HUGE premium that is coming into the name.)
"Unless Tilson can prove massive accounting fraud"...
I'm not saying GCMR is the Second Coming, just that this is gross Monday morning quarterbacking. I DID buy this puke-up, am already in the black, and am expecting a little more sanity going forward.
I really don't care about the play-by-play, Einhorn, Tilson, or any of it.
You're probably right on target with that remark. We've got a short-term upside target of $35.50. In the medium term, our upside target is $42. Our new downside target, for now, is $22.53. But that is after the run-up to $35.50 and possibly $42 (found here: http://seekingalpha.co....)
We did a piece back in October 2011, when GMCR was $64, projecting a worse case scenario of $37.21 which we missed by 6% on Nov. 10, 2011 (found here: http://seekingalpha.co...).
Regards.
Greenberg knows far more than Einhorn and the proof is in all years he wrote the business column for the San Francisco Chronicle (found here: http://bit.ly/IYxe9M). His work on accounting irregularities and corporate malfeasance is far more extensive and proven.
Regards.
Looking at some tea the other day at the supermarket, I see sitting side by side 20 tea bags for $2.59 (13 cents a cup) and 12 K-cups for $8.59 (72 cents a cup), a 454% premium. Even the most infatuated adopter of this new brewing system (and even that has many flaws which limit the quality of the brew) finally discovers the usurious economic reality of using these devices to make the daily brew.
Sure, GMCR might lose business to WMT, SBUX, Nestle or someone else, but the concept itself is not going away, it's not a fad.
72 cents is expensive, but Nespresso comes to about 40 US cents as well. There's certainly a vulnerability there.
At least in my own opinion there's a big difference between being out on the road for coffee and making it at home. Nobody compares a restaurant experience with the cost of making that same meal at home. There's more going on that comprises that overall experience, i.e., the service, convenience, etc.
But, when I make coffee at home, it's apples against apples, and Keurig (K-cup) (I tried one) has lots of drawbacks versus my Capresso grinder/brewer:
1) Keurig is only faster if the water is always pre-heated, but this causes both evaporation and alterations to flavor if allowed to sit over time. And, for multiple cups, mass brewing is easily faster and more convenient.
2) Keurig has no effective means to control the brew strength other than rudimentary changes to cup size. If you want a large, strong cup, you're toast.
3) The cost comparisons are downright laughable. It's one thing to pay 20%, or even 50%, more; it's quite another to pay hundreds of percent more for the everyday brew.
In my previous post, describing K-cups as a "fad," I didn't mean to suggest that it would disappear. I'm just suggesting that after the usual explosive early growth, two mitigating factors set in, which have serious economic side effects: 1) saturation starts to set in from the segment of buyers who are most likely to get caught up in the K-cup hype, and 2) there's an erosion in continued use from previous purchasers, who finally start doing the arithmetic and discover they're paying 3-4 times the cost of their usual cup of coffee, and not even getting as good a cup of coffee, to boot.
Like Paulo says about AMZN, why not punish other overvalued companies similarly? Closer to this story - DNKN's valuation is a joke.
Makes one think if the same coordination isn't happening in AMZN, given that there are news of 75% plunges in Kindle sales and the stock acts as if it were nothing.