Amazon Reports First Quarterly Loss in 4 Years
nytimes.com
nytimes.com
In other words, revenue is nearly identical and there's no profit, presumably because of these new things.
Amazon is one of the few very large companies that has extremely high potential for growth. I made an OK amount of money buying them after post-earnings panic and selling 1 day to 60 days later this year and last.
If it ever goes back down to 190 I might throw some % of my long term money their way.
(100% of my long term money, which is about $1000 every two weeks, is currently just going to TGT, another long term big company that already has a dividend but still has plenty growth potential)
((90% of my short term money, on the other hand, was buying 10K shares of OCZ at 4.90. Now its at 1.36. Ouch!))
Lately that's been nothing but Target, but it might switch to nothing but Amazon next month, or 50% AMZN 50% something else, and so on. So it's just the new money coming into the account getting divvied up, but doesn't reflect the actual holdings of long term account as a whole (which might only be 20% TGT and 80% other stuff)
Based on your strategy you're probably incrementally purchasing and the selling in bulk so the sell commission isn't as damaging but losing 0.70% of an investment right off the bat makes it hard to be profitable. Even half that amount, if you increase your lots to $2,000, is painful.
Unexpected things really don't happen very often and black swan risk is way overblown. When things blow up - they're a long time coming - you just didn't see the data.
No, it's not stupid to concentrate wealth. Problems only arise when you do it stupidly, like buying too big a house, being part of the wrong family, living in the wrong country or buying an unsafe car.
Diversification does not reduce risk but it cuts your returns in half. All correlations go to one in a crisis and you can't hedge the end of the world.
Note: To all downvoters - putting all your eggs in multiple baskets does not protect you from an asteroid impact any more than a person with all eggs in one basket.
People who think diversification makes them safe are frankly wrong.
Indeed people who own a job, a car or a house are well advised to have insurance. And insurance is a form of diversification.
For countries the analogy is flimsy, but if you live in a country that has had any of: wars, dictators, property confiscation or high rate of violent crime in the recent past (which describes most of the non-developed world, including emerging countries), it's a good idea to have a passport and a way to move elsewhere.
If you want to diversify you need to actually buy reverse correlated assets. So go ahead - hedge with options, hedge with futures, hedge with shorting the indices.
But don't think buying disparate companies protects you - it doesn't.
This is basic personal finance. TBH, I'm really surprised your comments aren't all at the lightest shade of gray already.
I fully understand the arguments for diversification. Just like I fully understand CAPM, modern portfolio theory and the assumption that var=risk.
But it's all bullshit. Why are you investing in companies that have that risk? If you understand which companies return higher returns - why aren't you all in on them?
It's bloody hard to find good companies and when you do - why on earth would you diversify into their worse off counterparts? You need to have heavy concentration in great companies where you are perfectly fine having a 10 year hold on at the right price.
Either I'm misunderstanding your argument or you are missing a fundamental tenant of finance (and indeed, most things in life). Higher returns typically comes with higher risk. A brand new startup is high risk with high reward if it pays out. The same thing applies to financial investments in high risk companies.
People take risks because they want to try and beat the historical growth in their portfolio. By taking on that risk, they know that they may lose money instead of grow their money.
Diversifying allows them to adjust how much risk they want to take above the standard market growth.
"Great Companies" is such a bad guide star for investing. Sears looked like a "great company" 10 years ago. Kodak? Any big box retailer?
Anyway, there are perfectly sound investing theories that say investing in the worst companies can result in higher returns than any "great company" investment portfolio. Value investing at it's most extreme. You just need a few of the losers to become mediocre to make huge gains, while trying to get great companies to grow past their high stock price is extremely hard.
I agree with your long-term strategy...but I don't see any reason to hold long-term stakes in individual companies. Why not just hold long term on index funds?
Most of modern economic and finance theory is based on fundamentally broken models of risk and return.
Known risks and future returns are certainly correlated. Unknown risks (financial crisis meltdown) are obviously uncorrelated because they are unknown. You can't control for those, which is why you diversify.
What are you going to do when your "great company" has a horrible CEO scandal and sinks the company? That's an unknown risk that would be prevented by diversifying your investments.
Known risks (such as "can this company execute it's vision well enough to be profitable at 500m revenue/year?") are what you weigh against the return ("I personally think so, but the market doesn't, so I'm getting a discount on the stock price when it eventually succeeds").
Concentrating wealth in stock is a particularly dumb idea, because even public companies are relatively opaque. Enron looked like a pretty good deal to an outsider, right?
Using things like citizenship, cars, households and families is a straw man and not related to financial investment at all.
Stating that Enron was a good idea was like stating Groupon was a good idea. Commodity companies that buy revenue (includes WorldCom and MCI) are always bad investments. Once again - had you invested in them you would be a moron.
It'd be fair to state that diversification protects against stupidity.
However, it does not reduce risk in the way people assume.
It really isn't that bloody hard to see shit for what it was - if you aren't making any money, if you are buying revenue, and if your service is commodity then you will be both a bad investment and eventually go bankrupt. Enron, WorldCom, MCI, Zynga, Groupon, Pandora fit these cases and hence will fail.
It irritates me saying "Ohh who could've predicted the GFC, or Enron or WorldCom or the DotCom bubble or whatever". Just because you don't see the asteroid coming before it crashes - it does not follow that it was a black swan. Grab a telescope and you'd have seen it coming 30 years out.
If you aren't making money and your business model is neither defensible nor proprietary - you will go out of business.
But then again - why are you investing in companies that you believe have localised risk of bankruptcy and a low chance of attaining future profits.
Otherwise diversification often gives a false sense of security with higher systemic risk (see GFC).
That is a huge difference. The dot com bust affected (almost) all tech stocks, but they didn't all go bankrupt.
This has been the Amazon story basically since founding. At some point, a company needs to yield real returns on their investments.
However, my actual portfolio has done ok with Amazon so I'm not complaining.
These games teach high school students very little about investing, especially long term. The other team's strategy was simply "I play video games and I like Gamestop, so let's buy Gamestop!".
In order to win this a friend and I decided to team up and split the winnings. Basically what we did was to get one of us to buy the riskiest investments that we could (penny stocks, other low cap stocks, risky derivatives etc.) and the other would short them. This way over the course of the few weeks one of us would be dead last, and the other far ahead.
Worked like a charm.
1-Zynga begins laying off people. (really, any big web 2.0 company begins laying off people, but zynga seemed like the logical choice.) The way I see it is this: if a flood of veteran web-devs, artists, PMs, etc hit the SF market, salaries will go down slightly as demand goes down. Since techies spend their money on tech, this will lead to revenues going down within the industry. This will begin a positive feedback loop because everything seems to be built on top of itself right now.
2-Second indicator is that Amazon's stock would fall. This is because they are essentially the bellwether of the tech industry: everyone runs their stuff on AWS. If their revs go down (which it doesnt look like they have), that means companies are feeling the pinch. Again, a positive feedback loop could quickly ensue.
Now that my two indicators have come to pass, I still don't believe strongly enough in the bubble theory to short the industry. But if anyone else wants to take my theory to the bank, I would be happy to take a 10% referral fee on any and all gains :)
Publicly traded companies optimize for return-on-invested-capital (ROIC), which includes profits (dividends) plus increases in equity value (share price).
Stable companies in stable markets often make the greatest returns by increasing revenue and reducing costs (i.e., optimizing for earnings). Companies in high-growth markets (esp. competitive ones) typically optimize for long-term market share/growth (which manifests as increases in equity value). Amazon falls into the latter category.
Not sure this makes sense to/helps anyone, but yeah, that's why Amazon operates the way it does.
The "low margin retailer" comments about AWS are funny too. AWS is effectively a billion dollar company, eligible for HUGE subsidies (from retail), under effectively no pressure for revenue/profits, and is ok with 3% margins. That sounds like a nightmare to compete with.
Amazon lost money, so what does it mean to say its profit per employee is $6k?
Anyway, a company that plows all its extra cash into growth doesn't make any profit in the short term, but if they're doing it right they'll make more money in the end. They went for a lot of years without making anything - now they're in a growth phase again.
Profit per employee isn't really a useful number in this respect.
That said, they are desperately trying to get into real tech. businesses.
I would argue that their profitability is a lot more stable than Apple. A few missteps and Apple is no longer the golden child. They have to continue to innovate or they lose their special status. Executing on a retail strategy is in many ways simpler than "build the next innovative consumer electronics widget...sell for astronomical price".
I'd take stock in Amazon over Apple any day.
Uh oh, classic indicator.
Once they are in a position to increase margins without risk of lost market share, the current valuation will be justified.
I get that Amazon is playing the long game, forgoe profits now to build a dominant company for the future. But how long have they been playing this long game for? How much longer before it pays off? This is a 17 year old company. People younger than Amazon are getting married and having kids.
Two clicks, actually. They have a patent on one click.
I ordered from a different retailer last Saturday night, and I had forgotten how long it takes to get stuff shipped in the real world: FedEx didn't receive the package until Tuesday at 8pm. With Prime, I'd already have it by Tuesday night.
Shipping speed isn't the most important aspect of online shopping, but I think it's indicative of how Amazon's size is already providing a competitive advantage that is hard to match.
I don't find that amazon's prices are that amazingly good. Sometimes they're better, sometimes they're not. I've found small things for half the price in local shops sometimes. Newegg will beat them for anything electronic, but their shipping is really erratic. And since I'm in WA, there's no tax savings.
Maybe I'm a special case. I don't live in a big city, but you can see one from the beach. It's 45 minutes to Walmart, 2x that to Target, Trader Joe's, the Apple Store and other pillars of civilization. Hell, it's 10 minutes to the nearest store (plus whatever time it takes to get the kids into shoes and strapped into the car).
Amazon wins on predictable convenience. They're the biggest store in the world, and they're right here. And whatever I want will be here in 2 days, shipped free. (yeah, we have prime. it's like crack)
Could be another 20-30 years.
That day may never come.
edit: Every quarter with margins in the single digits is additional evidence that it won't.
Right?
Ultimately, developed countries are going to have a difficult time finding good paying, reliable jobs for low skilled employees. This is an inevitable by-product of our shift to a globalized, modern economy and is one of the primary reasons why the US and Europe are struggling to keep their social safety programs solvent.
We all know it, and yet it's not actually true. America is the largest manufacturer in the world.
The main that happened is America switched from making many multiples of cheap item, to making smaller quantities of much more expensive and complicated items.
That can now be done with a simple CNC machine.
A lot of shops have sprung up that apparently have libraries of CNC designs, and they manufacture the parts on demand.
You are correct, there has been a resurgence in manufacturing in the US. The issue is that these new facilities are much more autonomous then their predecessors, and they are not going to result in pre-1980 manufacturing employment levels. While output may reach record highs, employment won't.
For example, there's a growing industry now of digitizing the zillions of documents, books, photos, movies, art, etc. This is low skilled labor.
Or Apple/Google/Microsoft sticking camera hats on people and having them hike trails to develop maps.
The list is endless.
I may read too much sci-fi, but I am fully convinced that we are heading to a future where most menial, low skill tasks will soon be done by technology and robotics. We have been heading in that direction for quite some time and I don't see that changing. The end result is the near elimination of low skill jobs. This doesn't necessarily mean that people won't be able to find work, it's just that we will need to do a better job at educating them to prepare them for more high skilled labor.
What about people who can't be educated for high-skilled labor? Seems like a taboo subject, but there are a lot of people like this in the world. What do they do?
* edit. These labor shake-ups are going to take place in "high-skilled" areas, too. IBM's Watson can probably be trained to be more talented at illness diagnosis than most MDs. It will be interesting to see what happens to those MDs.
Regarding your second point, I addressed this in the other post, but post-scarcity economics seems to be the best 'thought experiment' as to what a future society would look like. I truly believe that we are entering an age where human labor will become obsolete. It may take a while but, its going to happen.
I think you're correct.
For me, what's difficult is to understand what happens to us at that point...and I guess what happens to us on the way to that point. I can't tell if it will be good or bad (or a mixed-bag) for us/humans.
Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy http://www.amazon.com/Race-Against-Machine-Accelerating-Prod...
They give three explanations for the current slow job growth: (1) business cycle lack of demand, needing normal Keynsian stimulus, (2) technology running out of steam in improving productivity, and (3) the opposite, technology accelerating and destroying the need for highly profitable businesses to hire more workers. The authors think technology acceleration has been underappreciated for its effects on suppressing job growth.
I will definitely put that book on my 'to read' list. Very rarely have I been disappointed by an HN recommendation.
We are physical beings with physical needs. We can't live on thin air, we need a basic input of energy and matter to survive. But our society is organized around private property. When you are born, you own nothing. So far, we've been exchanging labor in exchange or property. Once labor becomes valueless, the vast majority of people end up with no means to acquire property, which is essential for physically sustaining life. Something will have to give up, and I'm not placing my bet for the owner class suddenly having a change of heart and sharing their property with the rest of us. Which leaves the majority of people in a scarcer and scarcer world.
We may not like the consequences if B&M retailers are driven out of business, and we're forced to rely on dubious online reviews to make purchasing decisions.
I can even look at manufacturer responses to reviews on Newegg, and ask other customers about specific issues I might have with a product. Of course, there is a possibility of the system being gamed, but I've had nothing but great experiences, although I am still vigilant for manipulated reviews.
Edit: I also don't have to choose from substandard consumer products sold at most stores, with high markups on trivial things like wires. With monoprice, Amazon, newegg, and others I can get reliable, quality products for what they're actually worth.
I'm not buying the "we'll grow really fast and then profit later" - didn't we learn about how that worked out already with the dotbomb?
Actually, Amazon did spectacularly well during the internet bubble with just that strategy. This is a return to the company's roots, in a way.