5 ms·

Amazon is the new Walmart

14 points by elsewhen 9y ago

Nokinside 9y ago
What everybody can agree with is that AMZN stock price is massively overvalued. Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. US retail sales are $5 trillion. Total retail sales across the globe are $22 trillion. Even if Amazon continues to grow at current pace, it runs out of markets to dominate before current stock price can be justified. Bezos announced that he is unloading $1B per year. Smart man this Bezos guy.
- WheelsAtLarge 9y ago
  True the stock is at an extreme price. But it's here to stay. Amazon has shown that they can expand their vision outside retail. I suspect that in time they will find a business model where their margins will be greater. It's a long shot but many people are hoping they find it. Hard to bet against Bezos.
  - Nokinside 9y ago
    >hey will find a business model where their margins will be greater That's not possible. Large scale retail can't be large margin business. Innovation and productivity increases are directed towards profit making with small margins. Amazon is in good position of dominating markets with cost cutting and staying profitable with smaller margins than competitors. The stock price is ridiculous.
- amalag 9y ago
  Stocks all over the world are now valuated on the hope that someone else will pay more than you. Not on any intrinsic cash flow of the businesses. This is the new normal.
- mikehines 9y ago
  Amazon is also on the infrastructure platform business that powers various multi-billion business like Netflix and Dropbox.
  - Nokinside 9y ago
    Another small margin business with lots of competition.
    - mrep 9y ago
      25% margin is pretty good (not apple good but still pretty good) [1] and the market is expected to continue to have high growth [2]. AWS is the main reason their stock is so high. [1]: https://seekingalpha.com/article/4042924-amazons-margin-situation-5-charts https://seekingalpha.com/article/4042924-amazons-margin-situ... [2]: http://www.gartner.com/newsroom/id/3616417 http://www.gartner.com/newsroom/id/3616417
- pmoriarty 9y ago
  If there's one thing that I've learned from living through the first internet bubble is that there's no such thing as a stock price that's "too high" or "overvalued". Some people will pay anything as long as they think they think they can sell it for a profit to the bigger fool.
  - Nokinside 9y ago
    This is true. Unfortunately markets have limited supply of fools with money. When the supply runs out, there is a correction. Figuring out when the correction happens is hard. It can take several years before the AMZN value is corrected. I would say that it happens within three years, but I could be wrong.
    - pmoriarty 9y ago
      People were constantly predicting Amazon's fall (and that of a ton of other skyrocketing stocks) throughout the whole of the first internet bubble. They were all wrong, until they were right.
      - Nokinside 9y ago
        There is difference between company failing and company price collapsing. Amazon may do fine, it's just that Amazon's price will be radically adjusted. When Internet bubble busted in last time. The Four Horseman of Tech (Microsoft, Dell, Cisco and Intel) lost 75% of their market value. Intel was valued $73.94 in 2000, now it's 36.3. The value of the stock never recovered even if the company is still going strong. Microsoft's value has been below it's bubble valuation 16 years and it broke it's previous record last year. It took Amazon stock price 10 years to recover from 2000 bubble.
  - jtarb1 9y ago
    The problem is akin to the land speculation from before the Great Depression. At some point, someone gets "hung" with it because there is no one else to sell it to. It'll be interesting to see where Amazon falls, though it may be many years.
- hbosch 9y ago
  Who is to say what's overvalued? A class-A share of BRK is 200x a single share of Amazon, last I checked.
  - Nokinside 9y ago
    Nominal value of a stock means nothing. It's not related to company performance or valuation.
- arkitaip 9y ago
  I swear you could become a millionaire simply by investing according to the opposite of investment "insights" on Hacker News.
- MarkMc 9y ago
  > Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. 3% of $16 trillion is $480 billion dollars. At a price-earnings multiple of say 10 the market cap would be $4.8 trillion. If $475 billion grows at 10% per year then it will take 24 years to grow to $4.8 trillion. In 24 years total global retail sales might grow from $22 trillion to say $160 trillion. Is it so unreasonable to think that Amazon might have a 10% share of total retail sales in 24 years?
  - ata6187 9y ago
    I agree that comment was poorly worded and confusing. I think what they might have meant was AMZN would have to earn $500B of profit over the next several years and based on 3% profit margin that would need $16T in revenue to earn that amount of profit. The math works out to approximately 7 years, though the comment just wrote "some time in the future".
- ata6187 9y ago
  I have no position in AMZN besides passive index holdings but clearly not "everyone" agrees the stock price is overvalued as many continue to hold onto shares at the current price. More importantly, in what world does a stock price need to justify a "10% ROI" or it's overvalued? This isn't the 1960s anymore, and even if it was a 10% ROI would not be the equity risk premium, maybe 5-7% ROI. One also needs to adjust for inflation which AMZN does better than Treasuries. Looking at profits and ROI is no longer standard practice for many market participants, particularly in technology it's clear secular N/A dividend and negative P/E are now accepted practices, for better or worse. The price of AMZN may go down, way down, or it might not, but either way your valuation technique is a dangerous one and I am very curious what stocks you do like if you are looking for a 10% ROI?
- lawrenceyan 9y ago
  The mistake that you make is assuming Amazon is a "low margin retail business" like how Tesla just "sells cars". The valuation is based on the belief that companies like Amazon will continue to expand based on more foundational and fundamental principles. Amazon's thing is becoming the platform and de facto distributor of everything. Keep in mind, Bezos started Amazon by selling books online. Look at where it is now, and think about it what might be in ten years. I make no judgement either way, but there are legitimate and sound reasons for why these valuations can be justified. Try to think bigger.
afinlayson 9y ago
Amazon is the Middle/Upper classes Walmart. It's hard to have a package sent to you if you don't have a secure way to grab it.

14 points by elsewhen 9y ago

What everybody can agree with is that AMZN stock price is massively overvalued. Amazon is on low margin retail business. Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. US retail sales are $5 trillion. Total retail sales across the globe are $22 trillion. Even if Amazon continues to grow at current pace, it runs out of markets to dominate before current stock price can be justified. Bezos announced that he is unloading $1B per year. Smart man this Bezos guy.

WheelsAtLarge 9y ago
True the stock is at an extreme price. But it's here to stay. Amazon has shown that they can expand their vision outside retail. I suspect that in time they will find a business model where their margins will be greater. It's a long shot but many people are hoping they find it. Hard to bet against Bezos.
- Nokinside 9y ago
  >hey will find a business model where their margins will be greater That's not possible. Large scale retail can't be large margin business. Innovation and productivity increases are directed towards profit making with small margins. Amazon is in good position of dominating markets with cost cutting and staying profitable with smaller margins than competitors. The stock price is ridiculous.
amalag 9y ago
Stocks all over the world are now valuated on the hope that someone else will pay more than you. Not on any intrinsic cash flow of the businesses. This is the new normal.
mikehines 9y ago
Amazon is also on the infrastructure platform business that powers various multi-billion business like Netflix and Dropbox.
- Nokinside 9y ago
  Another small margin business with lots of competition.
  - mrep 9y ago
    25% margin is pretty good (not apple good but still pretty good) [1] and the market is expected to continue to have high growth [2]. AWS is the main reason their stock is so high. [1]: https://seekingalpha.com/article/4042924-amazons-margin-situation-5-charts https://seekingalpha.com/article/4042924-amazons-margin-situ... [2]: http://www.gartner.com/newsroom/id/3616417 http://www.gartner.com/newsroom/id/3616417
pmoriarty 9y ago
If there's one thing that I've learned from living through the first internet bubble is that there's no such thing as a stock price that's "too high" or "overvalued". Some people will pay anything as long as they think they think they can sell it for a profit to the bigger fool.
- Nokinside 9y ago
  This is true. Unfortunately markets have limited supply of fools with money. When the supply runs out, there is a correction. Figuring out when the correction happens is hard. It can take several years before the AMZN value is corrected. I would say that it happens within three years, but I could be wrong.
  - pmoriarty 9y ago
    People were constantly predicting Amazon's fall (and that of a ton of other skyrocketing stocks) throughout the whole of the first internet bubble. They were all wrong, until they were right.
    - Nokinside 9y ago
      There is difference between company failing and company price collapsing. Amazon may do fine, it's just that Amazon's price will be radically adjusted. When Internet bubble busted in last time. The Four Horseman of Tech (Microsoft, Dell, Cisco and Intel) lost 75% of their market value. Intel was valued $73.94 in 2000, now it's 36.3. The value of the stock never recovered even if the company is still going strong. Microsoft's value has been below it's bubble valuation 16 years and it broke it's previous record last year. It took Amazon stock price 10 years to recover from 2000 bubble.
- jtarb1 9y ago
  The problem is akin to the land speculation from before the Great Depression. At some point, someone gets "hung" with it because there is no one else to sell it to. It'll be interesting to see where Amazon falls, though it may be many years.
hbosch 9y ago
Who is to say what's overvalued? A class-A share of BRK is 200x a single share of Amazon, last I checked.
- Nokinside 9y ago
  Nominal value of a stock means nothing. It's not related to company performance or valuation.
arkitaip 9y ago
I swear you could become a millionaire simply by investing according to the opposite of investment "insights" on Hacker News.
MarkMc 9y ago
> Amazons market cap is $475B. Assuming 10% ROI and 3% profit margin, Amazon must make $16 trillion in revenue some time in the future to justify the current price. 3% of $16 trillion is $480 billion dollars. At a price-earnings multiple of say 10 the market cap would be $4.8 trillion. If $475 billion grows at 10% per year then it will take 24 years to grow to $4.8 trillion. In 24 years total global retail sales might grow from $22 trillion to say $160 trillion. Is it so unreasonable to think that Amazon might have a 10% share of total retail sales in 24 years?
- ata6187 9y ago
  I agree that comment was poorly worded and confusing. I think what they might have meant was AMZN would have to earn $500B of profit over the next several years and based on 3% profit margin that would need $16T in revenue to earn that amount of profit. The math works out to approximately 7 years, though the comment just wrote "some time in the future".
ata6187 9y ago
I have no position in AMZN besides passive index holdings but clearly not "everyone" agrees the stock price is overvalued as many continue to hold onto shares at the current price. More importantly, in what world does a stock price need to justify a "10% ROI" or it's overvalued? This isn't the 1960s anymore, and even if it was a 10% ROI would not be the equity risk premium, maybe 5-7% ROI. One also needs to adjust for inflation which AMZN does better than Treasuries. Looking at profits and ROI is no longer standard practice for many market participants, particularly in technology it's clear secular N/A dividend and negative P/E are now accepted practices, for better or worse. The price of AMZN may go down, way down, or it might not, but either way your valuation technique is a dangerous one and I am very curious what stocks you do like if you are looking for a 10% ROI?
lawrenceyan 9y ago
The mistake that you make is assuming Amazon is a "low margin retail business" like how Tesla just "sells cars". The valuation is based on the belief that companies like Amazon will continue to expand based on more foundational and fundamental principles. Amazon's thing is becoming the platform and de facto distributor of everything. Keep in mind, Bezos started Amazon by selling books online. Look at where it is now, and think about it what might be in ten years. I make no judgement either way, but there are legitimate and sound reasons for why these valuations can be justified. Try to think bigger.

afinlayson 9y ago

Amazon is the Middle/Upper classes Walmart. It's hard to have a package sent to you if you don't have a secure way to grab it.