3 ms·

I think AMZN and FB will be few of the companies that would have killer quarterly earnings.

adventured 7y ago
Amazon retail's profits are a modest share of Amazon's value. The stock could get some action from people that don't understand what makes up the large bulk of their market cap at this point (AWS & ads). The problem is it's hyper valued here, even after the decline. It has a long ways to fall if investors decide to apply a more reasonable valuation to its income (even a slightly more reasonable valuation, like 50 times earnings instead of 70 or 80). Basically so what if they earn an extra $1 or $3 billion in profit in the quarter from retail (it'll be a temporary surge anyway), it's almost meaningless vs $910b in market cap, doesn't move the needle much. Plus, on Amazon, watch for a spending hammer against AWS and its growth. You might see a severe slowdown for several quarters (eg growth cut in half or worse), which will trivially destroy anything positive out of retail in regards to optimism. Business spending is going to get hit pretty hard for a while. Costco for example, I wouldn't go anywhere near the stock, despite the way it has held up. Who knows if we're going to see serious supply problems next (which will get them from another angle, rather than demand side as with many businesses in this environment). If we see much of a supply crunch, it'll take back anything positive retailers see short-term from the demand surge. The market is (properly) worried about a big thrashing to the ad market in the US, due to business going into the freezer. Businesses of all sizes are going to pull their ad spending - some as a part of survival mode (cash conservation) and some as a shift to being more cautious on spending in general for a while - at some point if this continues for very long (I'd expect weaker businesses have already begun pulling their ad spending). It's why Pinterest took a hard dive (ad spend worries), despite people sitting at home in quarantines screwing around online.
- panarky 7y ago
  It seems like your perspective is "the virus is temporary and at some point we'll get back to normal so buy good companies cheaply now and hold for years". Is that fair? I see it a little differently, that the virus may be temporary but how we live, shop, govern ourselves and conduct business will change permanently as a result. Some of the changes are accelerating existing trends, moving more online than offline from school to work to food shopping to governance. This crisis is exposing deep flaws in governance and public services that we won't be able to continue to ignore. Previously fringe ideas in the US such as universal healthcare, universal basic income, universal housing, paid sick leave, etc. are starting to show up in right-wing rhetoric, sometimes even more stridently than from those in the center-left. If permanent changes like this are in store, the beneficiaries are likely to be those with physical logistics networks like Amazon, Walmart and UPS, cloud computing like Amazon and Microsoft, online services like all of the FAANGs. I'd also buy biotech, health tech and home healthcare while selling hospitals and insurers. And I don't see the fossil fuel industry bouncing back from this, and that includes oil and gas as well as internal combustion automotive. When the economy resets lower, I expect clean power to dominate.
  - adventured 7y ago
    My perspective is whether it takes six months (unlikely) or two years (likely), we'll get back to normal. That includes the possibility of the market melting another 20% or 30% from here, during which I would cost average buy on the way down. I wouldn't attempt to time this, as in: buy once and only once based no the premise that it has bottomed at a specific price. I don't believe this will fundamentally change society. I believe it will remain ~99% the same. That conclusion is based on how I see this going. The bailouts and direct cash and stimulus attempts will last ~60-90 days, after which the US and EU can't affford to keep doing it (or at least not for much longer than that). At that point an obvious hard choice will present itself if the virus hasn't largely passed, and the only logical path is to quarantine the smaller group of the population that is most vulnerable, rather than quarantining everybody at a massive ongoing cost (which isn't sustainable anyway). That's also based on my belief that the virus has already hyper spread, over a million Americans have already had it or have it. We should be doing randomized testing of millions of people to check for that (blood tests as well). If it has hyper spread, then the real death rate is far lower and that will adjust how we approach the virus. It is a travesty that we don't have this data right now and or are not aggressively pursuing it at any cost. We will go back to work out of necessity. In the scenario I believe is taking place, we'll eventually figure out the hyper spread context has occurred, the primary question is how quickly we get from here to there. 6-12 months from now we'll be reading lots of articles about how it turns out there were far more infections than we thought. We'll put resources into protecting the vulnerable as much as possible as we transition back to society operating normally, and into expanding ICU related needs to care for those most affected as we go back to routine. The only way there would be permanent large scale changes, is if millions of people in the US die. There is no scenario where that happens in my opinion. Those extreme forecasts are all based on the case counts being accurate and very high death rates (as in Italy) being accurate (along with an inability to control the virus at all): case counts are not even remotely close to accurate, they're off by a minimum of 10x-20x. Italy hasn't had 35,000 cases, they've had closer to 350k-700k cases as a range. The biggest hit this virus produces to our system, is to the intensive care demands. We will need to invest tens of billions of dollars into that area persistently until the virus is brought under control (whether by herd immunity, seasonal fade, or vaccine later on). We have to maintain ICU services at a very heightened level. The overwhelming behavior will be to attempt to go back to business as before. Most people will not want to change, unless they're forced to (and they're not going to be forced to in most circumstances). > This crisis is exposing deep flaws in governance and public services that we won't be able to continue to ignore. Yes. We'll get guaranteed paid sick leave at a national level from this disaster. It will increase the demand for universal healthcare. I think that will initially take the form of all-guaranteed healthcare, meaning we aren't going to immediately move to a full socialized system, rather we'll focus on making sure everyone has something akin to guaranteed minimum healthcare (they'll focus first on the segment that routinely goes without healthcare). And if they're smart, the Democrats will use this time to push for something that specifically resolves medical bankruptcies (since we're not going full socialized initially, or perhaps not ever; many prominent countries successfully use split systems). I believe we'll establish a substantial pandemic response system coming out of this, which will coordinate the levers we need to use to react faster, from local to federal. It will also get the hospitals and private labs better integrated with agencies like the CDC, so we can spot outbreaks and test faster. That will remain intact for at least 10-15 years after this is over (until someone decides we're never going to have another pandemic). > those with physical logistics networks like Amazon, Walmart and UPS, cloud computing like Amazon and Microsoft, online services like all of the FAANGs. I believe Amazon will continue to see the cloud grow in their favor, of course. AWS will eventually be spun off, sometime this decade. I expect for the next few years, this will bump that transition growth rate (but not radically change it). Their multiple will compress gradually over time, their peak during this bubble run in the market, will be their general high level for a long time as their income grows into that valuation tier (meaning, if they go from $11b to $33b in net income, they won't get a ~$3 trillion valuation off of that, their multiple won't stay steady it will compress). That's the good scenario, where their growth remains intact. Their growth rate overall will continue to taper downward, the compression will occur along with that. Microsoft is already priced very richly, growth vs valuation. Azure will benefit in the same way AWS will. However, I don't believe this event will do something drastic, like double the rate of growth of the cloud majors for an extended period of time. Do I want to pay 25 times earnings for 10% average growth (say for the next five years) for an existing juggernaut? Not really, even though I love the MSFT profit machine. Most of the upside was in at the $190 highs it hit, my interest is mostly in stocks that could at least double from the lows (for MSFT to go up and hit $2t market cap with $50b in net income, you're talking 40 times earnings, which is obscene). Fair value on MSFT is more like 16-20 times earnings (this is all opinion, obviously), which requires $55-$65 billion in net income to just hit their present market cap. All of the FAANGS were considerably overvalued vs growth before and still are now (just less so). > And I don't see the fossil fuel industry bouncing back from this, and that includes oil and gas as well as internal combustion automotive. When the economy resets lower, I expect clean power to dominate. They'll bounce back, those that are well positioned financially (many of the weaker companies are going under or are going to be sold for pennies on the dollar). Oil demand isn't going anywhere this decade. Maybe if the horizon is 30 years. Nothing radical is going to change on the green energy front from the virus economic fallout. It will remain a slow process.

Amazon retail's profits are a modest share of Amazon's value. The stock could get some action from people that don't understand what makes up the large bulk of their market cap at this point (AWS & ads). The problem is it's hyper valued here, even after the decline. It has a long ways to fall if investors decide to apply a more reasonable valuation to its income (even a slightly more reasonable valuation, like 50 times earnings instead of 70 or 80). Basically so what if they earn an extra $1 or $3 billion in profit in the quarter from retail (it'll be a temporary surge anyway), it's almost meaningless vs $910b in market cap, doesn't move the needle much. Plus, on Amazon, watch for a spending hammer against AWS and its growth. You might see a severe slowdown for several quarters (eg growth cut in half or worse), which will trivially destroy anything positive out of retail in regards to optimism. Business spending is going to get hit pretty hard for a while. Costco for example, I wouldn't go anywhere near the stock, despite the way it has held up. Who knows if we're going to see serious supply problems next (which will get them from another angle, rather than demand side as with many businesses in this environment). If we see much of a supply crunch, it'll take back anything positive retailers see short-term from the demand surge. The market is (properly) worried about a big thrashing to the ad market in the US, due to business going into the freezer. Businesses of all sizes are going to pull their ad spending - some as a part of survival mode (cash conservation) and some as a shift to being more cautious on spending in general for a while - at some point if this continues for very long (I'd expect weaker businesses have already begun pulling their ad spending). It's why Pinterest took a hard dive (ad spend worries), despite people sitting at home in quarantines screwing around online.

panarky 7y ago
It seems like your perspective is "the virus is temporary and at some point we'll get back to normal so buy good companies cheaply now and hold for years". Is that fair? I see it a little differently, that the virus may be temporary but how we live, shop, govern ourselves and conduct business will change permanently as a result. Some of the changes are accelerating existing trends, moving more online than offline from school to work to food shopping to governance. This crisis is exposing deep flaws in governance and public services that we won't be able to continue to ignore. Previously fringe ideas in the US such as universal healthcare, universal basic income, universal housing, paid sick leave, etc. are starting to show up in right-wing rhetoric, sometimes even more stridently than from those in the center-left. If permanent changes like this are in store, the beneficiaries are likely to be those with physical logistics networks like Amazon, Walmart and UPS, cloud computing like Amazon and Microsoft, online services like all of the FAANGs. I'd also buy biotech, health tech and home healthcare while selling hospitals and insurers. And I don't see the fossil fuel industry bouncing back from this, and that includes oil and gas as well as internal combustion automotive. When the economy resets lower, I expect clean power to dominate.
- adventured 7y ago
  My perspective is whether it takes six months (unlikely) or two years (likely), we'll get back to normal. That includes the possibility of the market melting another 20% or 30% from here, during which I would cost average buy on the way down. I wouldn't attempt to time this, as in: buy once and only once based no the premise that it has bottomed at a specific price. I don't believe this will fundamentally change society. I believe it will remain ~99% the same. That conclusion is based on how I see this going. The bailouts and direct cash and stimulus attempts will last ~60-90 days, after which the US and EU can't affford to keep doing it (or at least not for much longer than that). At that point an obvious hard choice will present itself if the virus hasn't largely passed, and the only logical path is to quarantine the smaller group of the population that is most vulnerable, rather than quarantining everybody at a massive ongoing cost (which isn't sustainable anyway). That's also based on my belief that the virus has already hyper spread, over a million Americans have already had it or have it. We should be doing randomized testing of millions of people to check for that (blood tests as well). If it has hyper spread, then the real death rate is far lower and that will adjust how we approach the virus. It is a travesty that we don't have this data right now and or are not aggressively pursuing it at any cost. We will go back to work out of necessity. In the scenario I believe is taking place, we'll eventually figure out the hyper spread context has occurred, the primary question is how quickly we get from here to there. 6-12 months from now we'll be reading lots of articles about how it turns out there were far more infections than we thought. We'll put resources into protecting the vulnerable as much as possible as we transition back to society operating normally, and into expanding ICU related needs to care for those most affected as we go back to routine. The only way there would be permanent large scale changes, is if millions of people in the US die. There is no scenario where that happens in my opinion. Those extreme forecasts are all based on the case counts being accurate and very high death rates (as in Italy) being accurate (along with an inability to control the virus at all): case counts are not even remotely close to accurate, they're off by a minimum of 10x-20x. Italy hasn't had 35,000 cases, they've had closer to 350k-700k cases as a range. The biggest hit this virus produces to our system, is to the intensive care demands. We will need to invest tens of billions of dollars into that area persistently until the virus is brought under control (whether by herd immunity, seasonal fade, or vaccine later on). We have to maintain ICU services at a very heightened level. The overwhelming behavior will be to attempt to go back to business as before. Most people will not want to change, unless they're forced to (and they're not going to be forced to in most circumstances). > This crisis is exposing deep flaws in governance and public services that we won't be able to continue to ignore. Yes. We'll get guaranteed paid sick leave at a national level from this disaster. It will increase the demand for universal healthcare. I think that will initially take the form of all-guaranteed healthcare, meaning we aren't going to immediately move to a full socialized system, rather we'll focus on making sure everyone has something akin to guaranteed minimum healthcare (they'll focus first on the segment that routinely goes without healthcare). And if they're smart, the Democrats will use this time to push for something that specifically resolves medical bankruptcies (since we're not going full socialized initially, or perhaps not ever; many prominent countries successfully use split systems). I believe we'll establish a substantial pandemic response system coming out of this, which will coordinate the levers we need to use to react faster, from local to federal. It will also get the hospitals and private labs better integrated with agencies like the CDC, so we can spot outbreaks and test faster. That will remain intact for at least 10-15 years after this is over (until someone decides we're never going to have another pandemic). > those with physical logistics networks like Amazon, Walmart and UPS, cloud computing like Amazon and Microsoft, online services like all of the FAANGs. I believe Amazon will continue to see the cloud grow in their favor, of course. AWS will eventually be spun off, sometime this decade. I expect for the next few years, this will bump that transition growth rate (but not radically change it). Their multiple will compress gradually over time, their peak during this bubble run in the market, will be their general high level for a long time as their income grows into that valuation tier (meaning, if they go from $11b to $33b in net income, they won't get a ~$3 trillion valuation off of that, their multiple won't stay steady it will compress). That's the good scenario, where their growth remains intact. Their growth rate overall will continue to taper downward, the compression will occur along with that. Microsoft is already priced very richly, growth vs valuation. Azure will benefit in the same way AWS will. However, I don't believe this event will do something drastic, like double the rate of growth of the cloud majors for an extended period of time. Do I want to pay 25 times earnings for 10% average growth (say for the next five years) for an existing juggernaut? Not really, even though I love the MSFT profit machine. Most of the upside was in at the $190 highs it hit, my interest is mostly in stocks that could at least double from the lows (for MSFT to go up and hit $2t market cap with $50b in net income, you're talking 40 times earnings, which is obscene). Fair value on MSFT is more like 16-20 times earnings (this is all opinion, obviously), which requires $55-$65 billion in net income to just hit their present market cap. All of the FAANGS were considerably overvalued vs growth before and still are now (just less so). > And I don't see the fossil fuel industry bouncing back from this, and that includes oil and gas as well as internal combustion automotive. When the economy resets lower, I expect clean power to dominate. They'll bounce back, those that are well positioned financially (many of the weaker companies are going under or are going to be sold for pennies on the dollar). Oil demand isn't going anywhere this decade. Maybe if the horizon is 30 years. Nothing radical is going to change on the green energy front from the virus economic fallout. It will remain a slow process.