Amazon's Margin Myth: Sleight Of Hand
Paulo Santos • 108 Comments
Paulo Santos • 108 Comments
Amazon's Margin Myth: Sleight Of Hand
Paulo Santos • 108 Comments
Paulo Santos • 108 Comments
Wed, Feb. 24, 3:56 PM
- With Viacom (VIA +1%, VIAB +0.3%) looking to sell a strategic stake in Paramount Pictures, who could be interested in buying?
- Foreign investors are likely, amid a wave of investment in Hollywood from overseas. China's Perfect World is putting $250M into a development slate at Universal, while in-country counterpart Bona Film Group said in November it was putting $235M into a slate at Fox.
- Analysts suggest the studio is worth about $5.5B today, notes The Hollywood Reporter, so a minority stake could still come to $2B. Viacom paid $9.8B for the studio a dozen years back.
- Major conglomerates like Alibaba (BABA +0.6%), Dalian Wanda and Fosun (OTCPK:FOSUF) have an appetite for Hollywood deals -- and Wanda already owns cinema chain AMC and producer Legendary Entertainment, while exploring a stake in Lions Gate. A key interest with those firms is ability to get Paramount products into China, where Transformers is a major phenomenon. Tencent (OTCPK:TCEHY +0.2%) has similar international media appetites.
- Fosun is trying to buy Bona and take it private, which would give it Bona's entry into Fox's slate.
- Back home, Lions Gate (LGF +8.8%) is now a frequent source of tie-up rumors -- and is on the move today amid Amazon.com (AMZN +0.1%) content-deal chatter. Both Lions Gate and Amazon could use a piece of Paramount for different reasons.
- Meanwhile, Apple (AAPL +1.5%) has been floated as a possible bidder for Time Warner, as it may be shopping for content to feed TV dreams -- but a stake in Paramount would come far cheaper than trying to swallow Time Warner whole for $50B-$80B.
- Previously: Viacom, up 5%, confirms Paramount investment feelers (Feb. 23 2016)
Fri, Feb. 5, 12:43 PM
- On a day the Nasdaq is down 2.4%, Internet stocks are seeing outsized losses after LinkedIn (down 41.3%) issued weak Q1/2016 guidance with its Q4 beat.
- The professional social networking leader forecast its corporate hiring solutions business would see slower growth in 2016 (international macro issues were blamed). It also noted display ad sales fell by a high-30s % Y/Y in Q4 amid ongoing secular industry pressures, and reported just 7% Y/Y unique visitor member growth.
- Facebook (FB -5.5%), which soared last week after blowing away Q4 estimates on the back of 57% Y/Y ad revenue growth, is among the casualties. As is Amazon (AMZN -4.9%), which sold off last week after missing Q4 estimates and issuing in-line Q1 sales guidance, is also down sharply. As is Twitter (TWTR -5.3%), which reports in five days and continues trading near post-IPO lows amid growth/engagement concerns.
- Other decliners include Yelp (YELP -7.9%), TripAdvisor (TRIP -6.3%), Expedia (EXPE -6%), LendingClub (LC -8.3%), Wix.com (WIX -6.8%), Wayfair (W -7.6%), Groupon (GRPN -4.9%), Shopify (SHOP -6.3%), and Zillow (Z -6%), as well as ad tech firms Criteo (CRTO -8.9%) and TubeMogul (TUBE -7.6%). The aforementioned companies are generally expected to post Q4 results in the coming weeks.
- Earlier: Enterprise software and security stocks hammered after Tableau/LinkedIn's earnings
Fri, Jan. 29, 4:02 PM
- With the help of a 2.4% Nasdaq gain, Amazon (NASDAQ:AMZN) wound up paring the initial losses seen after the company missed Q4 estimates and offered in-line Q1 guidance, and is now up slightly from Wednesday's close (after having surged on Thursday with the help of Facebook's earnings). Several firms cut their targets, Benchmark raised its target, and no one upgraded or downgraded.
- Like many other Amazon bulls, RBC's Mark Mahaney (target cut by $60 to $715) thinks it's business as usual. "Here’s why we don’t see a fundamental problem: 1.) Revenue was closest (2.7%) to AMZN Q4 Guide high-end in 5 years. 2.) Q1 Revenue Guide implies almost no change in Y/Y revenue growth, despite a 4 pt tougher comp. 3.) [Paid unit growth] of 26% Y/Y was highest organic growth in over 2 years. 4.) The cause of the heavier than expected Fulfillment & Shipping expenses was a Good Problem – excess demand – and not structural. The # of 3rd party sellers using [FBA - Fulfillment by Amazon] jumped 50% Y/Y"
- Mizuho's Neil Doshi (target cut by $35 to $685): "So what’s changed? Amazon is seeing greater third-party FBA-related units flow through, thus requiring more investment in fulfillment. Ultimately, FBA comes at higher margin than [first-party] sales, so we believe these investments will drive revenue and margin improvement over time."
- CLSA's James Lee ($710 target): "The modest revenue miss was due to 'other revenues' and mix shift to 3P. Other revenues were mostly advertising, which was restructured in 3Q, causing a 50bp drag on the growth rate ... Excluding these impacts, e-commerce revenues beat consensus by 1% We think any concern in slowing growth appears to be premature as Amazon’s revenues grew 23% YoY, on par with Alibaba’s GMV growth in China.”
- Needham's Kerry Rice is less bullish. "While some of the short fall was attributable to FX, we believe the holiday e-commerce trends likely tailed off faster than expected and the revenue mix favored Amazon’s third-party (3P) business ... Q1 guidance was mixed with revenue upside likely driven by Prime and AWS, but lower than expected operating income as Amazon continues to invest in Prime, as well as ongoing investment in fulfillment, marketing and technology and content."
- Meanwhile, Amazon's disclosure that Prime subscribers grew 51% in 2015 (no subscriber number was given, as usual) is drawing attention. Re/code's Jason Del Rey thinks the figure implies Amazon has at least 46M Prime subs, given past disclosures.
Also getting attention: A line in Amazon's 2015 10-K (filed in tandem with the Q4 report) in which the company refers to itself as a "transportation service provider." Several reports and disclosures have arrived over the last two months suggesting Amazon is expanding its logistics ambitions.
- Prior Amazon coverage
Fri, Jan. 29, 9:15 AM
Thu, Jan. 28, 5:38 PM
Thu, Jan. 28, 4:27 PM
- Amazon's (NASDAQ:AMZN) North American revenue (60% of total revenue) rose 24% Y/Y in Q4 to $21.5B after growing 28% in Q3; segment op. income was $1B. International revenue rose 12% Y/Y to $11.8B (22% exc. forex) after growing 7% in Q3; op. income was $60M. AWS revenue rose 69% to $2.4B after growing 78% in Q3; op. income was $687M.
- Top-line details: North American Media revenue +11% Y/Y to $3.9B; international Media -3% to $3.3B. North American electronics/general merchandise revenue +28% to $17.3B; international EGM revenue revenue +19% to $8.5B. Overall, product revenue rose 15% to $26.6B, and service revenue 47% to $9.1B.
Financials: Gross margin (lifted by AWS and 3rd-party seller growth) rose to 31.9% from 29.5% a year ago. Fulfillment spend +33% Y/Y to $4.5B; marketing +15% to $1.8B; tech/content +36% to $3.6B; G&A (affected by stock compensation timing) -12% to $390M.
Trailing 12 month free cash flow minus principal lease payments and assets acquired via capital leases was $2.5B. Amazon ended Q4 with $19.8B in cash/marketable securities and $8.2B in long-term debt.
- Amazon has dropped to $555.02 after hours.
- Amazon's Q4 results, earnings release
Thu, Jan. 28, 8:52 AM
- Amazon (NASDAQ:AMZN) is up 3.7% premarket, Google/Alphabet (GOOG, GOOGL) up 2.2%, and Netflix (NASDAQ:NFLX) up 2.5% after fellow FANG trade member Facebook (up 14.7%) trounced Q4 estimates on the back of 57% Y/Y ad revenue growth. Nasdaq futures are up 0.6%.
- Separately, eBay, which has been losing share to Amazon and others for some time, is down 12.1% after issuing soft Q1/2016 guidance to go with in-line Q4 results. eBay's GMV was flat Y/Y at $21.9B, with Marketplace GMV dropping 3% to $20.7B.
- eBay spinoff PayPal is up 4.8% after beating Q4 estimates with the help of a 23% Y/Y increase in payment volume to $81.5B, and issued in-line Q1/2016 guidance.
- Amazon's Q4 report arrives this afternoon, and Google's on Monday afternoon. Last week, Netflix reported mixed Q4 results and strong subscriber adds.
Dec. 8, 2015, 9:29 AM
- Amazon's (NASDAQ:AMZN) Streaming Partners Program is separate from its well-known Prime Video streaming service, and provides Prime subs with discounted prices and free trials for a slew of 3rd-party online subscription video services.
- Initial partners include Showtime and STARZ, each of which are available to Prime subs for $8.99/month. Others include A+E Network's Lifetime Movie Club, AMC's Shudder and SundanceNow Doc Club, Tribeca Short List, Ring TV Boxing, and Korean drama site DramaFever. (the full list)
- Presumably in exchange for a cut, Amazon handles subscriber acquisition, billing, and customer service, provides a common watch list across subscriptions, and (perhaps with recently-acquired Elemental Technologies' help) delivers partner content via its infrastructure. Users are able to sign up via existing Amazon accounts.
- Streaming analyst Dan Rayburn previously reported Amazon was talking with content partners about a live streaming service. Meanwhile, Bloomberg has reported of talks with the likes of CBS and NBCUniversal about an online TV service.
- Netflix (NASDAQ:NFLX), which competes to varying degrees with many of Amazon's partners, has dropped to $121.10 premarket amid a 1.2% drop for Nasdaq futures. Amazon is down 1% to $663.05.
- Update (9:46AM ET): Netflix has quickly pared its losses: Shares are now down 0.6%.
- Update 2 (10:37AM ET): Re/code reports Amazon "intends to package some of the services it is selling individually into different bundles, presumably at a discount from the normal per-channel price."
Nov. 4, 2015, 1:49 PM
- "Oh yeah, I love Amazon (AMZN +2.7%). Because they're investing in their future. [Jeff] Bezos is a serial monopolist," said famed hedge fund manager Stanley Druckenmiller at a Tuesday conference talk.
- Druckenmiller, who has been bearish on IBM for some time: "The last 19 quarters, Amazon has missed their quarterly earnings nine times. They don't give a damn ... IBM has missed three quarters since 2006. They really care about their quarterly earnings." (10-year chart of Amazon and IBM)
- He also once more praised AWS, which had revenue of $6.9B (+65% Y/Y) over the 12 months ending in September. "If you're starting a business today, you don't need a tech department, you don't need a back office, you can use AWS. By the way, it's just ripping to shreds the 10 or 15 consultants from IBM ... that you used to need, but you don't need because now you go into cloud."
- Amazon has made fresh highs. Shares are up 14% since the company's Oct. 22 Q3 beat, and up 107% YTD.
Oct. 23, 2015, 9:14 AM
Oct. 22, 2015, 5:42 PM
- Amazon Web Services had Q3 revenue of $2.09B, +15% Q/Q and +78% Y/Y. Annual growth slowed just slightly from Q2's 81%, and remained well above Q1's 49%. Segment op. profit rose over 5x Y/Y to $521M.
- North American revenue (excluding AWS) was also strong, rising 28% Y/Y to $15B after having grown 26% in Q2. The segment had a $528M op. profit, after seeing a $60M loss a year ago. Media revenue +9%, electronics/general merchandise (EGM) +35%.
- International revenue rose 7% Y/Y (24% exc. forex) to $8.3B, after rising 3% in Q2. Segment op. loss narrowed to $56M from $174M. Media revenue -8%, EGM +14%.
- Financials: Gross margin (boosted by AWS and 3rd-party sales) was 33.9%, down from 34.6% in Q2 but up from 30.7% a year ago. Fulfillment spend +22% Y/Y to $3.2B, marketing +27% to $1.3B, tech/content +32% to $3.2B, G&A +14% to $463M. Trailing 12 month op. cash flow +72% Y/Y to $9.8B. Amazon ended Q3 with $14.4B in cash/investments, and $8.2B in long-term debt.
- AMZN +10.7% to $624.50, making new highs in the process.
- Q3 results/Q4 guidance, PR
Oct. 22, 2015, 5:37 PM
Oct. 22, 2015, 4:04 PM
- Amazon (NASDAQ:AMZN): Q3 EPS of $0.17 beats by $0.30.
- Revenue of $25.36B (+23% Y/Y) beats by $450M.
- Expects Q4 revenue of $33.5B-$36.75B (+14%-25% Y/Y) vs. a $35.2B consensus. Expects Q4 op. income of $80M to $1.28B.
- Shares +8% after hours.
Oct. 8, 2015, 11:57 AM
- ETSY has sold off following the launch of the Handmade at Amazon craft goods marketplace (anticipated for several months). Volume has been moderate - 430K shares vs. a 3-month daily average of 1.12M.
- "Etsy has a decade of experience understanding the needs of artists and sellers and supporting them in ways that no other marketplace can," the company states in an official response to the Amazon (NASDAQ:AMZN) launch. "Our platform attracts 21+ million thoughtful consumers seeking to discover unique goods, and build relationships with the people who make and sell them."
- For now, Etsy's selection dwarfs Amazon's - the company had 29M items listed on its site at the end of 2014, whereas Amazon's marketplace (has set strict listing rules) currently has 80K+. Amazon is hoping to gain ground by promoting its marketplace to its 285M+ active customers, by offering craft goods makers access to its fulfillment services (including Prime, for those able to ship quickly), and by courting sellers who have struggled to get noticed on Etsy. “I want to get more than 150 page views," says one Etsy seller giving Amazon a try.
- Notably, Amazon is taking a 12% cut on marketplace sales. Etsy charges only 3.5% plus a $0.20/item listing fee. Not all Amazon e-commerce platforms attempting to unseat entrenched incumbents have been major successes, as Groupon can vouch.
Oct. 8, 2015, 10:30 AM
- ChannelAdvisor (ECOM -5.7%) reports clients selling on eBay (EBAY -6.3%) saw their same-store sales rise 1.1% Y/Y in September. That's down from 3.4% in August, well below U.S. e-commerce growth of ~15% (per comScore), and the slowest rate of growth over the last 12 months.
- Only a 13.3% increase in Motors same-store sales (down from 20% in August) kept eBay's growth positive. Auctions were down 31%, and fixed-price sales 0.7%.
- Amazon (AMZN -1.9%) fared better, with same-store sales rising 19.2%. However, that's down from August's 24.7%, and also a 12-month low. 35.9% of Amazon-related GMV relied on Amazon's fulfillment services (FBA), up from 29.9% a year ago, with sellers using FBA seeing 30.1% same-store growth.
- Google Shopping/Product Listing Ads (indirectly competes with Amazon) were strong, registering 46.1% same-store growth with the help of higher conversion rates. Some of their growth came at the expense of search ads (dominated by Google), which saw a 9.5% same-store decline.
Aug. 27, 2015, 8:37 AM
- RayJay analyst Aaron Kessler's price target of $640 is unchanged, but Amazon's (NASDAQ:AMZN) slide of the past few sessions puts the stock at nearly a 30% discount to that level, making for an attractive entry point.
- Kessler also takes note of a solid Q3 start based on ChannelAdvisor data, the expectation that Prime along with continued category and geographic expansion will drive long-term retail growth, North American margins at an inflection point, and his belief that AWS estimates could prove conservative.
- Shares +2.4% premarket to $512.80.
Amazon.com, Inc. provides online retail shopping services. It provides services to four primary customer sets: consumers, sellers, enterprises, and content creators. The company also provides other marketing and promotional services, such as online advertising and co-branded credit card... More
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