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I see their stock crash today as a pretty temporary thing. I bought a lot of shares today around 200 which I hope is close to the bottom of this decline. AWS

by jontas 15y ago

I see their stock crash today as a pretty temporary thing. I bought a lot of shares today around 200 which I hope is close to the bottom of this decline. AWS growth combined with their new hardware combined with the holiday season should give them a nice boost by early next year.

wanorris 15y ago
I think the main thing will be how their margins play out. Amazon is a big enough company that investors expect decent margins even while they're growing rapidly. Perhaps this is an unreasonable expectation, but if so, I think Amazon should be more aggressive about giving guidance. Are there basically just no margins in their retail business? Are they intentionally depressing profits to keep taxes down? Why isn't there plenty of money there? Because even if they're investing a ton of money in expanding their distribution system to allow for growth, normally that gets treated as a capital cost and amortized over a period of time, not just expensed in the period they pay the money out. The same is true for upfront investment in their Kindle Fire business (edit: or in AWS infrastructure). I'm not trying to attack Amazon -- they're a savvy company that has proven to be hugely successful through any number of trials and crises. But it's just not clear to an outsider what's going on with their business at the moment.
- jontas 15y ago
  I agree with you, I am just betting (hoping?) that the current crash is temporary and they will recover in the near future. Their revenues are also down significantly (I think it was something around 40%) which can't be explained by large investments effecting their earnings.
  - vannevar 15y ago
    Their revenues are also down significantly... That is incorrect; revenues were up 44% (http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1621411&highlight= http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=iro...)
    - jontas 15y ago
      Well I fail at reading comprehension.. thanks.
- hyperbovine 15y ago
  Personally I've never been able to figure out how they manage to make money overnighting me dental floss for $4. (That said, I still own their stock and was glad to scoop up some more of it this morning on the cheap.)
  - jaredsohn 15y ago
    I wondered the same when I recently ordered a mousepad (via one of their partners) for ~$3 with free shipping, but since they used US mail I can understand how they managed it; they can perhaps do the same for small quantities of dental floss.
    - hyperbovine 15y ago
      I mean, somebody got paid to load my 90 yds of Reach onto an airplane in the middle of the night and fly it from Tennessee to California. With virtually no added cost to me, since I have Prime which I share with 5 other people in my family. New economy or not, there's just no way that makes economic sense. I know the argument is that Prime alters one's spending patterns, and ten paying customers are subsidizing every yokel like me who's too busy/lazy to walk to the drug store. Still it feels like an unsustainable model. I often wonder if we'll look back on this period as the apotheosis of consumerism, when cheap and abundant fossil fuels made it possible behave like we all owned matter transporters.
      - bluedanieru 15y ago
        I don't know that it's so unreasonable. The floss at the drug store got there the same way, after all, and it's not as though they scheduled the flight especially for you.
        jrockway 15y ago
        Indeed. It would be expensive for me to overnight you some floss. It's not expensive for Amazon to overnight you some floss, because they overnight thousands of packages every day and have some sort of contract that makes that cost a lot less for them.
- iradik 15y ago
  amazon's entire focus is on top-line growth. if they have any extra money lying around, they'll use it to make investments, hire people, or lower prices. as far as i can tell, they aren't too interested in profit as long as they can get away with it.
pdx 15y ago
I like Amazon, but with a PE of 90, I can't make myself buy them. At some point in the future, when all their growth is behind them and they become a value investment as opposed to a speculative investment, they need to make me between 5% and 10% on my money if I buy the whole company. That's how I evaluate stocks. That means a PE of 10 to 20. In what year do we believe that Amazon will be making 5X to 9X what it's making now, given it's current maturity? If that year is near, than, sure, perhaps buy here. I just can't imagine that kind of growth for such a large company.
- vannevar 15y ago
  Current revenue growth is around 50% annually; if that continues, it will reach the lower edge of your target (5X) in 48 months. Assuming of course it can maintain its margins.
  - mikeryan 15y ago
    Am I missing something or don't your assumptions assume that over those same 48 months Amazon's price remains static? Note that any assumption of Amazon's margins remain the same is kind of hard pressed. Their revenues this quarter was 40% greater then the same quarter last year - yet their earnings were down 73%.
    - vannevar 15y ago
      The question was 'when will Amazon be making 5X what they make now?', and the answer (at current growth rates and current margins) is 48 months. Which is not a long time, thereby explaining the high P/E. If you think the growth will slow substantially or the margins will shrink substantially (or both) in the next 48 months, then the PE is too high. Otherwise, perhaps it's not so crazy after all.
- kkowalczyk 15y ago
  Personally I think that Amazon has essentially unlimited growth opportunity, much higher than even the most amazing, most profitable product companies like Apple or Google. Product companies have a Microsoft problem: after they dominate a given market (and Microsoft pretty much dominated a lot of the most valuable segments of software market) and that market matures into slow growth, they have a very hard time finding new opportunities and consequently only grow with the size of the market, and as we've seen with Microsoft's flat stock price, Wall Street doesn't like that. To me, Amazon's is Merchant Of Everything, both physical and digital and Everything is a very big market. Amazon grew to its current size by exploiting shift to on-line purchasing but today they're big enough to start taking advantage of their size. Walmart conquered U.S. with lower prices but Amazon can offer even better prices because they don't have to operate physical stores with staff, just warehouses. Amazon is not done until they have a warehouse for each Walmart store, Best Buy store etc. and their competitive advantage grows with every warehouse they build. And when there are more Amazon's warehouse than Starbucks, there's international market to conquer. Additionally Bezos has shown that he's very comfortable competing aggressively, running the business at the edge of profitability, which makes sense if you think that Amazon's ultimate ambition is to drive every other merchant out of business by offering lower prices and become the Merchant Of Everything.

by jontas 15y ago

wanorris 15y ago

I think the main thing will be how their margins play out. Amazon is a big enough company that investors expect decent margins even while they're growing rapidly. Perhaps this is an unreasonable expectation, but if so, I think Amazon should be more aggressive about giving guidance. Are there basically just no margins in their retail business? Are they intentionally depressing profits to keep taxes down? Why isn't there plenty of money there? Because even if they're investing a ton of money in expanding their distribution system to allow for growth, normally that gets treated as a capital cost and amortized over a period of time, not just expensed in the period they pay the money out. The same is true for upfront investment in their Kindle Fire business (edit: or in AWS infrastructure). I'm not trying to attack Amazon -- they're a savvy company that has proven to be hugely successful through any number of trials and crises. But it's just not clear to an outsider what's going on with their business at the moment.

jontas 15y ago
I agree with you, I am just betting (hoping?) that the current crash is temporary and they will recover in the near future. Their revenues are also down significantly (I think it was something around 40%) which can't be explained by large investments effecting their earnings.
- vannevar 15y ago
  Their revenues are also down significantly... That is incorrect; revenues were up 44% (http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1621411&highlight= http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=iro...)
  - jontas 15y ago
    Well I fail at reading comprehension.. thanks.
hyperbovine 15y ago
Personally I've never been able to figure out how they manage to make money overnighting me dental floss for $4. (That said, I still own their stock and was glad to scoop up some more of it this morning on the cheap.)
- jaredsohn 15y ago
  I wondered the same when I recently ordered a mousepad (via one of their partners) for ~$3 with free shipping, but since they used US mail I can understand how they managed it; they can perhaps do the same for small quantities of dental floss.
  - hyperbovine 15y ago
    I mean, somebody got paid to load my 90 yds of Reach onto an airplane in the middle of the night and fly it from Tennessee to California. With virtually no added cost to me, since I have Prime which I share with 5 other people in my family. New economy or not, there's just no way that makes economic sense. I know the argument is that Prime alters one's spending patterns, and ten paying customers are subsidizing every yokel like me who's too busy/lazy to walk to the drug store. Still it feels like an unsustainable model. I often wonder if we'll look back on this period as the apotheosis of consumerism, when cheap and abundant fossil fuels made it possible behave like we all owned matter transporters.
    - bluedanieru 15y ago
      I don't know that it's so unreasonable. The floss at the drug store got there the same way, after all, and it's not as though they scheduled the flight especially for you.
      - jrockway 15y ago
        Indeed. It would be expensive for me to overnight you some floss. It's not expensive for Amazon to overnight you some floss, because they overnight thousands of packages every day and have some sort of contract that makes that cost a lot less for them.
iradik 15y ago
amazon's entire focus is on top-line growth. if they have any extra money lying around, they'll use it to make investments, hire people, or lower prices. as far as i can tell, they aren't too interested in profit as long as they can get away with it.

pdx 15y ago

I like Amazon, but with a PE of 90, I can't make myself buy them. At some point in the future, when all their growth is behind them and they become a value investment as opposed to a speculative investment, they need to make me between 5% and 10% on my money if I buy the whole company. That's how I evaluate stocks. That means a PE of 10 to 20. In what year do we believe that Amazon will be making 5X to 9X what it's making now, given it's current maturity? If that year is near, than, sure, perhaps buy here. I just can't imagine that kind of growth for such a large company.

vannevar 15y ago
Current revenue growth is around 50% annually; if that continues, it will reach the lower edge of your target (5X) in 48 months. Assuming of course it can maintain its margins.
- mikeryan 15y ago
  Am I missing something or don't your assumptions assume that over those same 48 months Amazon's price remains static? Note that any assumption of Amazon's margins remain the same is kind of hard pressed. Their revenues this quarter was 40% greater then the same quarter last year - yet their earnings were down 73%.
  - vannevar 15y ago
    The question was 'when will Amazon be making 5X what they make now?', and the answer (at current growth rates and current margins) is 48 months. Which is not a long time, thereby explaining the high P/E. If you think the growth will slow substantially or the margins will shrink substantially (or both) in the next 48 months, then the PE is too high. Otherwise, perhaps it's not so crazy after all.
kkowalczyk 15y ago
Personally I think that Amazon has essentially unlimited growth opportunity, much higher than even the most amazing, most profitable product companies like Apple or Google. Product companies have a Microsoft problem: after they dominate a given market (and Microsoft pretty much dominated a lot of the most valuable segments of software market) and that market matures into slow growth, they have a very hard time finding new opportunities and consequently only grow with the size of the market, and as we've seen with Microsoft's flat stock price, Wall Street doesn't like that. To me, Amazon's is Merchant Of Everything, both physical and digital and Everything is a very big market. Amazon grew to its current size by exploiting shift to on-line purchasing but today they're big enough to start taking advantage of their size. Walmart conquered U.S. with lower prices but Amazon can offer even better prices because they don't have to operate physical stores with staff, just warehouses. Amazon is not done until they have a warehouse for each Walmart store, Best Buy store etc. and their competitive advantage grows with every warehouse they build. And when there are more Amazon's warehouse than Starbucks, there's international market to conquer. Additionally Bezos has shown that he's very comfortable competing aggressively, running the business at the edge of profitability, which makes sense if you think that Amazon's ultimate ambition is to drive every other merchant out of business by offering lower prices and become the Merchant Of Everything.