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  • One Thing Is Odd [View article]
    Good post on Fire Phone not being in the top 100. It IS however #1 in contract phones, which is something. The original iphone wasn't anywhere near the massive success of the iPhone 3G (the 2nd iphone a year later).

    do not underestimate AMZN short since January: The overall nasdaq is posting new highs, yet AMZN hasn't had a new high since January-- that's pretty awesome performance in a short. It's down over 15% from highs, that's pretty cruddy performance vs market.
    When markets go up, most everything that has a "story" goes up, regardless of revenues and profits. It so happens AMZN's "story" is revenue growth and we'll make the profits later. While there's been a miniscule drop in growth, this is trumped by the long term AMZN story. And the growth is still a high double-digit number considering the company's age.

    AMZN has been a great short since Xmas, but it's not an ideal short in a heavily-up stock market. Thank lucky stars it's not setting new highs like AAPL or losses from shorting would be MUCH higher.
    Aug 20 04:36 PM | 2 Likes Like |Link to Comment
  • The Amazon.com Web Services Problem [View article]
    This is mere dismissal of the true facts. Not understanding this comment.
    Fact remains, Office 365 capex is not comparable to Amazon AWS-- AT ALL.
    Again, better to change your article to a MSFT-short header rather than an AMZN-short header. RAX is indeed a totally different model, but its a lot closer to what AMZN is doing than MSFT. You have no case here, other than against MSFT's Office product.
    Jul 28 03:41 PM | Likes Like |Link to Comment
  • The Amazon.com Web Services Problem [View article]
    Legislation DID change, and continues to change, against Amazon's core business value.
    Jul 10 12:33 PM | Likes Like |Link to Comment
  • The Amazon.com Web Services Problem [View article]
    This is like when you argue with your wife, and when she knows you're right, she changes the subject to something you're definitely wrong on (like any of your past mistakes).

    It doesn't matter which one you meant, CRM or Salesforce, the premise is exactly the same either way: AWS is selling a commodity, Salesforce and ALL CRM vendors are selling a software trap not unlike MSFT Office.

    You are free to compare the capex expenditures of Rackspace, Google App Engine (or whatever they are calling it these days), MSFT Azure (assuming you discount all legacy MS software products in the cloud), and home-grown corporate server purchases and maintenance. Those are all apples to apples.

    If you continue to compare AWS capex to something like Office 365 capex; then we're done here bc that is like comparing CO2 cannister sales to Coca-Cola sales and claiming they are pretty much the same thing.
    Jul 10 12:32 PM | 1 Like Like |Link to Comment
  • The Amazon.com Web Services Problem [View article]
    Completely different. Not sure why it matters what Wall St thinks; what matters is what the capex is spent on. Microsoft is simply trading customers whose maintenace is free, to customers who's maintenance is expensive. Bad for them, but it's a transfer. Whereas companies big and small are looking to rent dumb space. Microsoft "Azure" doesn't get any bigger bc they are selling their product to themselves, in fact, it's weaking BOTH entity's cash flows.

    I'm not sure why you're acting like you're dismissing what I'm saying, since you in effect agree with it already. just say, "yes, the entire premise of my article is based on a bad comparison". Then you can claim whatever you like.

    I still stay you wrote a pretty decent short case against MSFT. I'd take advantage of that, instead of arguing something that's wrong and you know it.
    Jul 10 12:26 PM | 1 Like Like |Link to Comment
  • The Amazon.com Web Services Problem [View article]
    Absolutely INCORRECT. CRM is traditionally an application, which CRM them moved to the cloud. It's a company born from PeopleSoft and Oracle. Salesforce's revenues are the same as Office 365, it's a business not related to selling a cloud commodity. Salesforce might SAY their product is a commodity, but this is absolutely untrue. The switching costs are significant.

    If you're using Office 365 revenues, you've clearly exposed your hand in this article, and now I completely understand that you wrote it for effect not reality.

    AWS is a commodity product with an element of service and switching costs, but mostly it's a commodity. PaaS would be closer to the CRM business, but still not the same level of customization. AWS is mainly IaaS. AWS's customers are going from buying their own machines, to renting them from a bigger buyer.

    Microsoft, to the extent they are expanding capex thanks to Office 365 growth, is as far away from AWS concerns as one could possibly be. You'd have done MUCH better to write an article about shorting MSFT, bc the costs of their "Office" cash cow have now climbed significantly vs the legacy product (which was stored on all those CUSTOMER'S computers which were ALSO a big revenue source for Microsoft).
    Ha, by revealing your mistake, we've uncovered that you wrote a much more interesting article than I thought, you just picked the wrong company to short.

    Amazon's AWS capex will be entirely UNaffected by Microsoft Azure's capex spending. There's my theory, and it's true, but I'm not going to write an article about it bc I have no incentive.

    I've read the series of articles, they too are frought with error. Altho, it's ironic, I think AMZN the stock is headed for mid double digits and there's a chance it goes away entirely in a bloody battle with a better competitor.
    Jul 9 12:00 PM | 3 Likes Like |Link to Comment
  • The Amazon.com Web Services Problem [View article]
    Paulo, it's a nice theory... so far; but, you've really not done enough research.

    #1 Cloud Revenue: "it depends on what you count".
    How much of what MSFT counts is actually another product, such as Office, Outlook, or Microsoft-OS server rentals for customers stuck on their OS? None of those should count, as they are just Microsoft's traditional application revenues ported to "cloud". 100% of Amazon's cloud revenues are legit, bc they didn't have any legacy application products to port to cloud. Google is a more accurate comp for AWS, and that's probably what you should use; especially, since they are the leader in price reductions vs MSFT.

    #2 Apples to Oranges comparisons:
    MICROSOFT (and Google too) likely has to spend in bursts, in order to justify the lower pricing. Thus for a short while, they can buy in bulk and claim that they can make up the cost in X number of years. But this assumes constant pricing, and pricing has never once shown to be constant in this business. It is FAR easier to be the leader here, as AMZN can spend their capex incrementally as demand picks up. Or, as a leader not afraid of future demand, they can take advantage of component pricing when opportunities arise. Whereas MSFT nor Google can count on future demand, just as their customers can't REALLY count on Google staying in the business. Google has shown a great ability to abandon projects, not by selling them, but shutting them down. Orkut, several social networking attempts actually, Reader, and I wouldn't be surprised if they unload (or already did) Blogger. But let's not focus on Google's mishaps, let's instead focus on the fact that Amazon doesn't have to buy in massive geographic expansion clumps like Microsoft does. The leader is already there, and adding incrementally, based on demand. Whereas the followers need to justify lowering of prices (bc how else can they compete if not on pricing, AWS is clearly the best service so far) by making large capital outlays based on the newest low component prices, and backdoor into cheaper pricing.

    #3 One Year does not a full analysis make:
    Again, you're arguing that AMZN could trade to $100 based on FCF going to zero for a single year. Has this worked in the past? AMZN has had EPS go to zero twice, and yet Wall St gives them the benefit of the doubt due to long-term focus, and takes the stock price higher based on far-future earnings potential. The same here. AWS will get credit so long as they emerge on top. So why are you making a futile argument, that Wall St will all of a sudden make FCF important in AMZN's stock price? Bezos was able to borrow money in the early days to keep his money-losing dream alive, and that was when they were REALLY losing money. Why is that going to change, isn't AMZN and Bezos doing the same thing they've always done? The only times AMZN stock was penalized became massive buying opportunities. FCF going down for one year is not a disaster. But you haven't even supplied enough data anyway.

    #4 Amazon AWS is not Microsoft.
    You make an assumption, or at least try to project, that AWS will need to duplicate mSFT's spending. YET, you do not provide the data required to even make this a decent supposition. By what % did MSFT increase it's capacity with the latest capex? How does that relate to how much AWS needs to spend to grow its capacity? You simply assume that if MSFT had to spend in the last 12 months a certain amt, then AWS will have to spend that same amount.
    As many good retorters have already reminded you, AWS is already in the lead, and doesn't need to play catch-up to a business they already dominate. Thus, they won't have to "spend like MSFT" to maintain the business. Sure, there will be capex, but you've offered no evidence they have to do it in one year.
    Furthermore, one year doesn't matter in this particular business. Would you have argued that the Sands Hotel was doomed bc the casino company had to put forth all that capex in year one? Lastly, as AMZN had proved many times, it's not your upfront FCF that matters, its what you get to reap in the end if you win the ultimate game. Sure, nothing's been proved in ANY of AMZN's business yet; HOWEVER, AMZN HAS made some positive FCF after all these years of massive upfront capex spend, so there's something to be said for looking long term.
    and listen to Google, they essentially argue that upfront spends are part of a big company's job in society, to take the big capital risks that others cannot. You can't start a space company in your garage, or at least, get it moving quickly.
    AMZN knows this (as Bezos is involved in space as well)

    #5 BEST EVIDENCE = WORST EVIDENCE
    The best evidence in your article is the MSFT map. It shows a doubling of centers.
    But this leaves the question un-answered, does AWS need to double its centers?
    What is the state of AWS geographic expansion? I can't imagine AWS isn't already spread out, given that's a basic requirement for being in this business (duplication, spread out duplication of data, that is).
    So without providing the same map for AWS, you're map actually provides evidence that MSFT's capex spend is likely "catch-up".

    #6 INCONSLUSIVE DATA, MISREPRESENTED:
    You claim Amazon's fire phone is a dud, using top 100 electronics scores. Fire Phone isn't for sale, it comes out July 25th. It's on ONE carrier, a carrier that plans to carry it in STORES, in a market where most people buy their phones in cellular-branded stores, not Wal-mart and Amazon. To theorize the phone is going to fail this early, is marketing not research.
    Also, same theme, you suppose that AMZN mis-priced their phone high. This should sound familiar: "it depends on what you count". specifically, if you think the "extras" amazon includes with the phone are of no value, such as: a year's subscription to Prime ($99 value), the live support, the 3D gaming effect (which other phones do NOT have) via 3 extra cameras, the book borrowing service, etc.... , then I guess yours COULD be considered a stronger theory. But unlike say iFixit who documents the costs of components, you haven't done this. So you don't even know that in just phone-component terms if Fire phone is actually a good value or not.

    #7 Good-sounding headlines & conclusions-- but lacking evidence to support theories, and research is only half-baked. I'm actually interested in your theory, albeit at MUCH smaller relevance/merit since Wall St won't care about a single year's capex at Amazon, but you've got a lot of work to do to make it a sounder argument. I suggest a re-write or re-traction when you've actually gathered enough evidence to make/break the strong theory you've layed out. As it stands, you've not convinced me of anything with this article, no matter how small a value it is.

    I like your theories, but you are one-sided and without the proper support or research to really make a successful claim. I think by continuing to not acknowledge the flaws in your theories, you set yourself up for less people taking you seriously.

    disclaimer: I'm short a little bit of AMZN prior to reading your article. But my thesis is a bit different than yours. I appreciate your attempts, but they are of little value other than thought provokation.
    Jul 9 11:08 AM | 5 Likes Like |Link to Comment
  • Here's What Amazon.com's Smartphone Will Do [View article]
    AMZN stock doesn't trade on eps/earnings, it trades on revenue growth, ONLY. So if enough people buy this phone, regardless of whether a gimmick or not, AMZN will get revenue growth and the stock will go up. Profits are for other companies.

    That's where your analysis goes wrong. 1.9% of smartphone market is gonna be about 20mm phones, times say $200 = $2bn. Plus this phone will make AMZN's job of selling digital goods (books, movies, songs, games) easier thanks to broadening the devices around it's dying model of selling goods requiring no inventory space.

    also, disclose your position in the stock. why write with zero interest involved? AMZN stock price doesn't care what Blackberry's valuation is, that's a bad reason to get short a stock historically (not just with AMZN but remember back when Priceline was worth more than all the airlines combined? sounds like it makes sense, but it matters not to stock market).
    Jun 9 05:10 PM | 1 Like Like |Link to Comment
  • Amazon Vs. Google: Battle For The Clouds [View article]
    The cost of switching email platforms is/was also rather huge, yet Google managed/managing mass migrations to their cloud services. Outlook had many enterprise tie-ins for instance, and was VERY hard to switch away (still is), yet enterprises do it one by one day by day all the time. Market share and economy of scale are VERY important to the top 2 (especially) and 3 competitors, but amongst those competitions can take strange and very unexpected turns. This has been true all throughout history (and for Apple maybe several times).

    Enterprise business is just consumer business in slow motion. There's still companies that use green-screen terminals, but there is no growth there. The trick to enterprise is if you're cracking the brand NEW customer. So as long as Azure or AppEngine can attract new customers, the business can go from there. Sure, maybe an AWS customer might not switch for 8 years, but in business you don't need to win a contest in a year, you can take a couple generations.

    I enjoyed your piece, but this is the kind of piece which comes out and reassures everyone that one company is the winner looking in the rearview mirror. This happens all the time, in 1998 Microsoft was crowned the king of all, now look. You have Google stealing their Outlook business and beginning to encroach on their Office product, you have Salesforce and Amazon ripping into their enterprise sales, you have Apple and Google ripping into core Windows, and even Xbox is now threatened by upcoming Apple iTV (with games). Right when things are written in stone, there's the time a change is coming.

    A better piece wouldn't be written from the perspective of a big vocal marquee customer (Netflix who probably retains best pricing in return for advertising their affinity with AWS publically), but from the perspective of a newer startup evaluating platforms in the early stages at the current moment in time.

    Think about it this way, at one point gmail had almost no market share (same with Chrome browser, you don't get much more ingrained with apps on top of apps than a broswer-- I still have to use IE for certain apps to this day even tho market shares are almost even at this point between Chrome and Firefox) and they simply won the new young accounts (and still are). One by one.

    As for what happens, no idea. But AWS isn't a very protected business model since new customers can come in and make a different decision with no strings. AWS can make the choice difficult based on price, but this works better on smaller players, niether of which are Google nor MSFT.

    AMZN has it's own problems in it's BIGGER business coming up, thanks to the state tax change, and competitors approaching one-day shipments. It's focus on the main business which steals from the smaller businesses. During the next consumer down-cycle (due roughly now, 2007 was peak of the last one, and they happen around every 4-8 years) Amazon will have to prove their business model AND generate some positive cash flow (most of any cash flow they've generated has been used for acquisitions and infrastructure) to not dilute their owners. This will prove a tough task when units aren't flying off the shelves in good times. They have their work cut out in electronics and over-the-web media in which their historical advantage (inventory mgt) do not apply.

    Bezos and Amazon are some of the best around, but challenges lie ahead. AMZN is now a stock you wanna own at a cheap price when the chips are down. We're not there yet. Good luck.
    Apr 26 02:31 PM | Likes Like |Link to Comment
  • Is Amazon The Next Netscape? [View article]
    Those that own AMZN love the growth (27% last qtr sans acquisitions and loss-leader Kindle) and they love the margin potential; however, it turns out AMZN should only get credit for one or the other. If Bezos were to turn on the profit spigot, growth would take a negative turn and then settle out at single digit growth. AMZN would then get a 20 multiple being a slow grower but with significantly higher EPS.
    OR...
    Bezos could continue to grow at the expense of earnings, and sooner or later the world will have to accept AMZN's low margins (like in the next 2-3 year recession). This is the path he's chosen, but with this plan his growth is going to run out ANYWAY, OR he's going to have to lose more money to continue the high rate of growth, taking EPS and margins even lower.

    Either outcome results in a stock which will trade at roughly a 20-40 multiple of today's earnings. Figure EPS at about $1.50, so AMZN will eventually trade for a very reasonable growth multiple of $60 per share, or 40x. Or lower. All the price-sales jockey's in the world can't change that.

    Grow or Earn Amazon, it doesn't matter, your stock is going down.
    May 9 01:51 PM | Likes Like |Link to Comment
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