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>> Retail is very low margin business. Retail is a complicated beast. Walmart has a operating margin of 2% but return-on-invested-capital of 11.5% , reasonable

by petra 9y ago

>> Retail is very low margin business. Retail is a complicated beast. Walmart has a operating margin of 2% but return-on-invested-capital of 11.5% , reasonable. Which is more meaningful ? And Amazon has similar math on it's side. Or let's consider Amazon's 3rd party retail business: the marketplace which probably has healthy margins, combined with fullfilment which is pretty differentiated: 1-day shipping, prime eligibility, largest warehouse network, etc. So maybe decent margins.

nabla9 9y ago
Do the math. 1. How much Amazon must make profit per year to justify current market cap If you want 10% ROI? 2. If Amazon has 4% profit margin(2X Walmart), how much it hast to make revenue to get the profits you calculated in phase #1. 3. Consider that world global GDP is around $100 trillion and US GDP is $19 trillion. Do you think that any one company is allowed to grow until it makes 10 percent of US GDP or 1-2 percent of the world GDP? Do you think any company can grow that much?
- petra 9y ago
  Let's see: the reason Walmart gets such high returns on low-margims, is because it knows how to rapidly sell hoods and thus reuse cash. And that is half of current retail sales. But when Amazon let's someone else sell on it's platform, it gets a nice margin(today it's maybe 15%!) on money that it didn't even spent! And sure building warehouses is expensive. But those are fixed costs. Or that Amazon may kill brands and than own brands at scale, i.e private labels - which some think may be the next AWS. There are maybe some other types of that stuff going around, so idk if you can judge Amazon as regular retail.
  - nabla9 9y ago
    My original argument was: >The stock price of __good__ tech companies will not collapse because they stop making profits, gaining market share or growing. It collapses because they are overvalued. >People simply refuse to understand that great companies can't escape massive over-valuation just because they are great companies. You are arguing that Amazon is a good company with good business model, just like I predicted people will do. What you must do is to take the current market cap of Amazon and then calculate how big it's market share must be to justify it's current valuation. Then you must make a sanity check and compare it to total markets in US and OECD and think if that king of growth is possible.
    - deleted 9y ago
      [deleted]

by petra 9y ago

nabla9 9y ago

Do the math. 1. How much Amazon must make profit per year to justify current market cap If you want 10% ROI? 2. If Amazon has 4% profit margin(2X Walmart), how much it hast to make revenue to get the profits you calculated in phase #1. 3. Consider that world global GDP is around $100 trillion and US GDP is $19 trillion. Do you think that any one company is allowed to grow until it makes 10 percent of US GDP or 1-2 percent of the world GDP? Do you think any company can grow that much?

petra 9y ago
Let's see: the reason Walmart gets such high returns on low-margims, is because it knows how to rapidly sell hoods and thus reuse cash. And that is half of current retail sales. But when Amazon let's someone else sell on it's platform, it gets a nice margin(today it's maybe 15%!) on money that it didn't even spent! And sure building warehouses is expensive. But those are fixed costs. Or that Amazon may kill brands and than own brands at scale, i.e private labels - which some think may be the next AWS. There are maybe some other types of that stuff going around, so idk if you can judge Amazon as regular retail.
- nabla9 9y ago
  My original argument was: >The stock price of __good__ tech companies will not collapse because they stop making profits, gaining market share or growing. It collapses because they are overvalued. >People simply refuse to understand that great companies can't escape massive over-valuation just because they are great companies. You are arguing that Amazon is a good company with good business model, just like I predicted people will do. What you must do is to take the current market cap of Amazon and then calculate how big it's market share must be to justify it's current valuation. Then you must make a sanity check and compare it to total markets in US and OECD and think if that king of growth is possible.
  - deleted 9y ago
    [deleted]