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More on Amazon's (AMZN) Q4: The company swung back from its Q3 loss as North America sales rose...
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Tuesday, January 29, 4:13 PM ETMore on Amazon's (AMZN) Q4: The company swung back from its Q3 loss as North America sales rose 23% Y/Y to $12.175B and International sales gained 21% to reach $9.093B. Growth in the company's Electronics segment outpaced Media segment sales. Free cash flow decreased 81% to $395M for the trailing twelve month period compared to a year ago with real estate outlays factoring in. For Q1, the company sees $15.0B-$16.6B in revenue and expects profit to fall in a range of -$285M to $65M. A conference call is scheduled for 5:00 EST. AMZN changes direction, now +3.2% AH. (PR)
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There are entry points and exit points.
It's much harder to actively trade a 9 figure sum of money than it is for the retail investor to trade 5-6 figures.
Anyway, did you get out of the AMZN short?
I can't figure this stock out. I just don't know what keeps this thing afloat? In any case, I give up.
This George Costanza "Opposite" episode has to end some time... soon please before my April 265 puts expire.
Ex. If you think the earnings report is good, say you made 14 billion. Then Sell. If you think the company is outrageously over valued and is running a failed strategy that only leads to brick and mortar distribution centers then borrow on margin to buy long.
we are in a post buffet-wonderland.
AMZN grew their revs 20%+. They will have revs of 80 billion this year. They are a 125 billion dollar market cap. WMT has revs of 500 billion this year. They are a 250 billion dollar market cap. It's reasonable to assume that at maturity, AMZN will have margins near (or in excess of WMT) when they fully build out distribution chains. And, at the rate they are growing, it's reasonable to assume that in 10 years they will rival WMTs revenues.
So, they could be a 250 billion + market cap in 10 years. That would be a stock price of of $550 or so....
I think the market is front-running the growth somewhat, but it's not a bad retail story.
Now, if it ran up to $400 in the next year, then I think it will be a great long term short, just by selling upside calls (assuming that they will never do much in excess of 500 billion in rev / year)
And unless revenue ACCELERATES, which is the contrary of what it's doing, it's not going to make $80 billion this year either. That was before the report, before AMZN warned it's slowing down.
In the long, rather than short, game, it's all about commanding the revenue stream and not about celebrating profit margins. Companies that celebrate profit margins, even if they appear robust in the early going, cede market share and the economies of scale to those that seek to monopolize the revenue stream, and worry less about the profit per unit. Eventually, the pressure that arrives because a competitor can sell multiple times as many units at far less profit per unit causes margin pressures on the companies with high margins, but less sales. Soon, suppliers do better deals with the higher-volume companies, and the lower-margin companies get squeezed, both in cost and in free sources of supply. It's a war of attrition that doesn't favor the smaller garden.
In fixed-cost intensive businesses this dynamic operates much faster, and any company that cannot spread its fixed costs across higher volumes soon operates at a major disadvantage to the high-volume producer and literally finds its existence in peril soon enough. In businesses, like tech and most retail, the variable costs are much higher, so it takes longer for economies of scale to exert their force, but when they do, they're just as onerous to the lower-volume producers.
The foregoing is precisely why Apple is now in trouble, as Samsung and Google (Android) expand sales at 4-5 times the pace of Apple. In fact, we already had one incarnation of this exercise, when MSFT buried AAPL by taking the vast market share in PC's, while AAPL played in their walled garden and celebrated their temporary high margins. It should have been instructive as to what might happen yet again with phones and tablets. And, it will get worse.
And, it's why retailers far and wide, who have less favorable cost economics, will continue to wilt under Amazon's assault. Amazon's objective is to suck up all the air in the room, control commerce, then it can manage pricing with much more alacrity.
Thank you.
Using back of the envelope, if AMZN grows 2013 $80Bn revenue 20% for the next five years and achieves a normalized net margin of 5% ($10Bn), applying an 18x P/E gives $180Bn market cap vs. $130Bn now (@$285/share) or an expected 7% stock IRR.
Disclosure: I don't have any position in AMZN. I have no interest in shorting it (see above). I agree that it's a tremendous revenue growth story, which will eventually be convertible into EPS.
Fundamental analysis may not matter, but it may still be right. Tack's analysis is right.
What Amazon does and what they have achieved is both very expensive and creates huge economies of scale that no start-up could hope now to finance or achieve. The proof of this is that since Amazon's ascendancy not a single notable player has successfully challenged their e-commerce position or entered the market.
In the 1990's, venture capitalists were financing all kinds of nutty schemes. Now, their sobriety in this space is comparable to mortgage lenders after the subprime fiasco.
Hence, Amazon is and will remain unchallenged.
The important competitors aren't disappearing. Barnes & Noble had more revenue last year than ever in their history. Laggard Overstock.com had more income per share than Amazon last quarter--the best in a long time. Ebay is blowing away earnings estimates. Walmart is ramping up internet sales and making money while doing it.
Amazon is a story stock excessively fawned over by technophile males who hate to shop in person (and also dominate Wall Street). If Wall Street were dominated by women, Amazon would be a sub-$100 stock.
There are a million rationalizations for the stock price, but Amazon has never proven that they can generate income consistently. Some day that will matter. Until that day, the herd will come up with whatever rationalization they can think of. A long bull market has dulled the common sense of even the few intelligent investors in the stock.
P.S. The comparison to Microsoft is ludicrous.
I think it's worth mentioning that operating leverage breaks both ways though. There is no business hell worse than having huge fixed costs and contracting revenues. Razor thin margins are quickly overwhelmed by hundreds of millions in quarterly fixed costs and things get ugly fast.
Your point about the challenges large new entrants face is completely valid. It's not going to happen. A more likely scenario in my mind is that a wave of states, if not all, will start to require sales tax collection for e-commerce companies over a certain size (as measured by revenue).
Reasons this legal compromise is likely:
- it appeases the small-business (primarily the national retail federation) lobby which is concerned about the burdens collecting sales tax at a different rate for every county in the country would place on small business
- similarly, it will please the "keep it local" business lobbies (there are a bunch)
- it still raises significant "revenue" (sorry, I still have trouble with the concept of using the word revenue as a substitute for taxes) for the government
All of the sudden, the mom and pop shops across the country are price competitive again. Altogether, these shops will take back a huge chunk of amzn's revenue.
Barring this, I'm not sure what derails this train.
Not even MSFT got close during the bubble - never had a multiple like AMZN's
The third-party sales are the best of all. They add almost zero to infrastructure costs. In essence, on an ROA basis, Amazon's share of this revenue is nearly free. That's the ultimate economy of scale.
The slowing is worse for AMZN as the amount of fixed cost they have added over the past 2 years is remarkable and is showing up as major issues in terms of opex (net margin is down as gross is up - but analysts ignore the bottom line - and apparently the top line now as well).
Also, Walmart has these distributed assets already in place and is far ahead of Amazon. They could do same day delivery almost without spending a dime if they wanted to (if they believe it is profitable).
Perhaps, you could explain how 3P sales increase Amazon's fulfillment expense. One would think that Amazon is merely "taxing" someone else's sales.
Walmart works because they are able to attract customers in huge volumes, allowing the more-units, less-per-unit-price model to work. How could Walmart be more efficient than Amazon in the home-delivery approach, when they have huge investments in bricks and mortar everywhere? If that were so, BestBuy should be eating Amazon's lunch.
Sure, 3P is one of the better parts of AMZN anyway. But the aggregate is hardly profitable at all and the share trades for 1/2 of what AAPL is worth, which makes no sense especially with growth shutting down.
Amazon also has huge investment in Brick & Mortar - its called fulfillment centers. Their current plan to avoid the massive increases in shipping costs due to oil increases is build distributed FC's everywhere ... they essentially end up with local B&M like Walmart, but yet they still have to ship. This means inherent lower margin on each sale for Amazon than WMT.
Look, I like Amazon, I just believe they are a 15-20% grower going forward on 2% net margin at its best (up from 0.5% in Q4). If the stock was trading at $160 I would be long the stock (as I was in 2011, early 2012 when it was down at that level)
First off, allow me to say that I don't invest in retail stocks, so this discussion is merely academic for me. That said, I don't see how it is claimed that Walmart's model, by design, is more advantageous, as not only does Walmart have the distribution centers, they also have to support a huge local retail infrastructure, staff, etc. This B&M model is only more profitable depending on many variables in the equation, like product mix, COGS, margins, volume, etc. Obviously, Walmart has made its model work.
1) You say AMZN has a great advantage because it is plunging huge amounts into infrastructure, then you say WMT sucks because it has huge infrastructure;
2) If you look into WMT's or COST's P&L, you'll notice that its costs are LOWER than AMZN's ... sure, they have some additional cost from all the stores, but then they don't have to pick, pack and ship stuff for their customers, because the customers do it themselves.
1) Your comment takes my comment out of context. I said that Amazon's investment in the infrastructure for its type of business, as well as the market dominance it has now achieved, serve as a barrier to entry for other would-be e-commerce firms, which someone claimed anybody could do. Centralized-versus-dis... distribution is or is not more effective depending on volumes, pricing and product mix.
2) Perhaps, the whole discussion of Amazon vs. Walmart is misdirected in the first place. Walmart's business is vastly different than what Amazon does, as it sells huge amounts of food stuffs, perishables, commodities, etc. This is not the business in which Amazon is engaged. If one would take away, Walmart's routine point-of-sale business, like food, which draws in customers often and repeatedly, they would find themselves in trouble versus Amazon, just as other retailers have. In fact, that's one of the reasons Walmart moved so aggressively into food stuffs because it served as magnet to get customers in their stores weekly or even more often.
Yes, Amazon packs and ships, at least for their own fulfillment, and that may or may not be more efficient, depending on the item and sales volumes. To the extent that Amazon serves as an order taker for third-party sales, they're more like a taxing agency than a seller. They can expand that business endlessly at very low cost.
My original point was directed at how a high-volume, low-margin business eventually puts great strain on those that cannot achieve the same economies of scale. As Amazon achieves a higher and higher proportion of sales, their economics get better and better, while various competitors (take BestBuy, as just one example) see their business model get worse and worse.
I wish people could pay me to make no money.
Investors cheer double digit revenue.
Well, I could do that too by selling everything at cost. Huge revenue, no profit.
5000 p/e ?
Bloomberg editor Mark Gimen points out that Apple earned $13.1 billion in profits last quarter. From the time Amazon turned a profit in 2003 to the end of 2011, Amazon has earned $5.1 billion in profits. (From inception, adding up losses, it's ~$1.5 billion, says analyst Benedict Evans.)
We want to say that again: Amazon's total profits are ~$5.1 billion. Apple did more than double that in the last three months.
(Amazon's price-earnings ratio is currently a mind-boggling 3,275x. Apple's is 10x. Traditional valuation metrics are obviously pointless for Amazon, but if you were to use Amazon's PE for Apple, the stock would be trading at $144,618 per share, for a market cap of $136 trillion. Those numbers are totally meaningless, but it's funny to think about.)
What do you think?
Two kids were standing on opposite corners selling pencils, they both paid 3 cents a piece for pencils, the one selling his at a profit for 4 cents each couldn't understand how his competitor was making any money selling out his inventory, each pencil for 1 cent, so he went over to ask what the secret was, all his competitor said was "volume"
That being said- you are CORRECT that fundamentals matter little (to none) in trading.
Are you also suggesting that they mean little to nothing in the long run?
I haven't bought anything on Amazon since. Plus, I won't be buying anything on Amazon once they start charging sales tax. Right now, it's a 7% savings (at minimum) for me to shop Amazon.
Also, the video streaming options are junk. It's much cheaper to go to redbox or stream online for free.