Amazon misses earnings target but shares still jump 10% | Hacker News Reader

Amazon misses earnings target but shares still jump 10%

blogs.wsj.com

38 pointswr147251 comments

I've been enjoying Matthew Yglesias's snark on this topic for a while [0]:

That's because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way.

Earlier [1]:

If Amazon does have an evil Part B to its plan where it uses its monopoly status to jack up profit margins, that at least gives competitors a fighting chance. The real risk is that "sell the devices at cost and make it up on e-books, but wait, we don't make profits on those either" is all there is to the plan, and Amazon's investors have just unleashed a storm of locusts on the world that will ruin everyone else's profits.

...

But for consumers, it's great. An Amazon Prime membership is the most outrageously good deal in commerce today. But competitors should be afraid. It's an amazing deal and you can't beat it precisely because Amazon can't make it work, either!

[0] http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_pro...

[1] http://www.slate.com/blogs/moneybox/2012/11/05/amazon_destro...

Except 3rd party sellers are a huge part of Amazons business and is the fastest growing. We make plenty of profit, and they make 20-33% of that from us.

Not going to lie, the numbers for Amazon's stock suggest that the stock price is absurdly north of earnings. While I'd love to buy into Amazon (one of the best services online imo), it'll need to break into some major new markets to start "justifying" that price to me.

From the comments section on the article:

The Emperor has no clothes

The company missed earnings estimate (21 c instead of 29 c), missed on revenues, year-over-year, in 2012 net loss was $39 million, or $0.09 per diluted share, compared with net income of $631 million, or $1.37 per diluted share, in 2011. Free cash flow decreased 81% to $395 million for the trailing twelve months, compared with $2.09 billion for the trailing twelve months ended December 31, 2011.

The stock is trading at 295 times its free cash flow and free cash flow is not growing. IMO, the stock is worth at best a generous 30 times next year’s estimated EPS of $1.70, or $51 a share. Frankly, even the current consensus $1.70 for FY 2013 looks rosy, when the company makes only 21c in its best, holidays-sales quarter. E-Books or anything else that builds revenues without earnings, that is Groupon flavor “growth”. Sell-side analysts will have to come up with creative theories to justify their Buy ratings.

That kind of "should" analysis always make me laugh. AMZN should be $51, something else should be $3500. You can find this kind of number-crunching to support and refute every move of every stock with volume.

I'm sure there's a great saying or time-tested analogy about concerning yourself with what a stock should be doing, as opposed what it is doing, but I'm at a loss.

> I'm sure there's a great saying or time-tested analogy about concerning yourself with what a stock should be doing, as opposed what it is doing, but I'm at a loss.

"Markets can remain irrational longer than you can remain solvent."

-- John Maynard Keynes

This oft-quoted point is only true if you are trading on margin. A better way to phrase it to me is "Markets can remain irrational longer than you can remain alive." or, more succinctly also from Keynes, "In the long run, we are all dead."

> This oft-quoted point is only true if you are trading on margin.

No. Insolvency can happen with any kind of debt, not just margin.

The point is if you go long AMZN right now you don't have to worry about becoming insolvent as much as becoming dead before the profits come rolling in.

one word: monopoly. investors are investing/speculating in the prospect of Amazon becoming a monopoly in online retail and potentially also cloud computing, both potentially several hundred billion dollar businesses. short term valuation analysis is missing the deep, almost unparalleled speculative nature of this stock.

the problem is the stock is priced so high now that this path is the only path where the valuation is reasonable.

Totally agree. As an amazon prime user Amazon is effectively already a monopoly in my home.

Barring a "same day" competitor achieving the same scale it's hard to see how retail survives in the future as amazon continues to increase stock, decrease pricing (by building their own OEM for popular products), and improve delivery time (scale + new distribution)

monopoly? amazon? not even close. ecommerce is price driven, there is no customer loyalty online. cloud computing, 100s providers are offering cheaper services already. its a surprise AMZN is still surviving.

No customer loyalty? Have you ever met anyone who uses Prime? I and many others I know go straight there and will pay a premium to make sure it comes from Amazon, because I know if something goes wrong, it won't be a pain in my ass. This industry is consolidating because there's a great option that is essentially a no-brainer in almost every way.

I don't have Prime but I have shopped at Amazon a few times. However, I don't think I will be a "loyal" customer due to a recent incident.

There was a sale going on for a particular item, so I logged in and bought it. However I didn't see the order in my account. After waiting for an hour and refreshing a few times, I got locked out saying that my account was potentially compromised (it wasn't, I just hadn't logged in for several months, and I was on a different IP).

I immediately restored access by verifying my email again, however it canceled my order and cleared my entire order history. I spent the next hour talking to a customer service representative who seemed to be from India, and kept asking me for the order number when my entire ordering history was wiped by their system. By the time I got this point through his thick skull, he said they couldn't do anything about it, and by that time the sale was over.

This seems like a pain in the ass to me.

I mainly buy from Amazon, but largely as a "default fail-through" option for random goods (and books/kindle of course).

I'd probably buy camera gear from B&H preferentially if they added a few features to their buying process (tracking all my equipment whether bought there or elsewhere, checking compatibility, maintenance, etc.). I'd buy computer equipment, car accessories, etc. from other vertical vendors who do the same thing (and generally do buy from Tirerack for that purpose)

There's loyalty to Amazon, but it's not absolute. I could start a new retailer in a given niche today and probably defeat Amazon in that niche.

Yeah, I just haven't put the effort into scoping out exceptional vertical vendors with the exception of electronics, so Amazon gets a very large percentage of my purchases, and I'd imagine that most people are the same way - buy from niche retailers in the things they understand well and buy a lot of, otherwise, Amazon.

Where is cheaper than Amazon? Please, show me a list of these hundreds of providers..

No customer loyalty, except to Amazon. I like to shop there because I know they won't make a fuss if there is a problem with the product. That's worth some money (should they ever be more expensive than somebody else).

Assume that you are correct. How do you ensure that your prices are the lowest? Supply chain management and volume.

Short of Wal-Mart performing a miracle or spending tens of billions of dollars restructuring their entire business, Amazon is pretty much guaranteed to establish a retail monopoly in the U.S. No one else has the resources to dethrone Amazon, and I'm not entirely convinced that Wal-Mart can do it either.

anyone paying attention realizes AWS has been permanently 2-3 years ahead of everyone else, and that's being generous, in terms of capabilities. the reason is they are one of the few companies in a position to both offer extensive cloud services and eat their own dogfood on a massive scale. this, combined with AMZN's obsessions with undercutting competitors on price, locks them into the head of the pack. in the long run, it will just be GOOG, MSFT, AMZN, and maybe CRM or other large scale sass providers who can pull it off at the right price. RAX et al are fucked imho b/c of the dogfood gap.

AWS is contributing significantly to the revenue numbers:

"Other" revenue, which largely consists of AWS, had annual sales of $2.52 billion, up from $1.58 billion in 2011. "Other" sales were $820 billion in the fourth quarter, said Amazon.

http://www.zdnet.com/amazons-q4-falls-short-of-estimates-out...

They must mean $820 Million. Either that, or Amazon has a side business selling cocaine.

The size of the global cocaine market is generally estimated to be in the high tens of billions.

10% jump is misleading. amzn dropped $8 in like the last second of trading. It's up more like 6%. (Or back to exactly where it started yesterday morning. :))

I think the point is that the stock went up at all, which is ridiculous considering their latest quarter and total year.

But the point is that the stock didn't actually go up. It recovered a small amount of the drop. Few quarterlies are really completely surprising, and if a bad quarter were priced in, a not-as-bad quarter suddenly looks rosey.

I love amazon and think they're probably a good investment, but it is really funny to see the different reactions to this vs. Apple.

People who bought Amazon stock thought they were getting a company who was going to grow aggressively by offering low prices. People who bought Apple thought they were getting a company that was going to make huge profits which would then be re-invested in technology that would rule the world. Low profits aren't a problem for the Amazon plan, only the Apple one.

Low profits are absolutely a problem for Amazon's plan. Profits != margins. Being in a low margin business means you need to make up the difference in volume.

And volume actually hurts you if your margins are in the red. ;)

Agree with you on this. AMZN was having a free ride on "no-tax" internet purchases for a long time. Now, many states are charging tax for online purchases.

Suppose you buy $1000 TV on AMZN, we used to save ~ $85 on tax alone. This was main reason AMZN was doing better in the past. Now, why would someone buy a TV on AMZN, rather buy it locally on a store.

This reduced their volume. AMZN has become a low-margin low-volume business.

AMZN is a low-volume business?

but being on the internet, what tax rate would it be if i purchased from another country that has no sales tax?

I think taxing sales is the wrong thing to do - you must tax the entity recieving the money. So if amazon decides that the US is too high a tax rate, they can move their HQ to the caymen islands, and pay effectively no sales tax. This should lead to optimal tax rates across the board hopefully, whilest lowering prices.

it is the customer who the sales tax. Lets say I buy a $1000 tv on amazon. I used to get the TV for $1000 with free-shipping. Now the same TV will cost $1080 with free shipping.

For buying expensive things amazon was a great place, because the buyer was not paying the sales tax. Now, they have to pay the sales tax, so there is no advantage of buying from amazon.

Being in a low margin business means you need to make up the difference in volume.

On the flip side, having low margins usually means it's more difficult for other people to come and eat your lunch. Apple's incredible success has little entrenchment (well, it did for a short period earlier in the cycle when every premiere app was iOS only), and investors have to consider the possibility that a single uncompelling product release can devastate the company. Amazon has no such threats.

Other external, non-competitor related events could seriously harm the business. E.g. a low margin steel manufacturer and sudden rise in price of iron ore with a slightly smaller increase in price of steel, or even rise in price of wrong type of steel.

I'm doing my bit (for the UK business). Ordered a new TV, A/V amplifier and Bluray player, plus cables, mounts and sundries. It is no surprise at all that the traditional high street retailers are having a hard time - Prime is convenient, the range of goods is there, and the returns process Just Works - prices are almost irrelevant within an epsilon.

I forget what the UK amazon has for its prime equivalent, but after getting Prime in the US and the Amazon credit card for points, Amazon basically owns me and my buying habits.

It is somewhat scary to be honest how accurate their recommendations are now that I've input information. People talk about Facebook, but Amazon has way more information on actual purchases from me. Whatever, don't care much, they do a good job and returns are painless.

This part is funny.

First Quarter 2013 Guidance "Operating income (loss) is expected to be between $(285) million and $65 million, compared to $192 million in the prior year period."

So they're not even projecting profits for the future (except the range of $0-65 million).

I kind of get the game that Jeff is playing which is the $0 balance sheet but straddling that line is a dangerous business. With just under $3 billion in cash, any shift in the needle competition wise and you're screwed for a few quarters... I guess you could raise prices at that point?

I shop Amazon these days because I know no one else will be selling cheaper, because everyone else is looking to make a profit. Great for the consumer but I'm not sure what it'll mean for the retail industry as a whole when, in a decade's time, there's no one else left.

Fewer malls? Oh, the horror...

It's not the malls that pose meaningful problems: it's the niche stores that help bind a community together.

I'm sure those exist... it's just that that statement means nothing to me, or to most other people who live in a large city (i.e., the majority of Americans).

So Amazon will take out Wal-Mart?

Not without a fight! I know a couple of developers who recently signed on with Wal-Mart.

http://www.businessweek.com/articles/2012-03-29/why-wal-mart...

Wal-Mart has the money, but similar to the way that myspace, RIM, and others have treated their respective markets, Wal-Mart has been treating e-commerce like it's a fucking joke for far too long.

I'm not entirely convinced that they realize how serious things are right now.

I'm surprised too. It's baffling that none of the big boxes are competitive online yet.

I believe most of the optimism from that quarter came from the improving margins, which something AMZN hasn't always done a good job with.

If that optimism kept the stock flat, maybe that would be reasonable, but a jump in the price considering they missed basically every goal for the quarter seems irrational. Of course, "it's the market", and so on...

Just remember that if the price is irrational, only a sucker bets that it will "correct" to a more rational price.

"Markets can remain irrational longer than you can remain solvent."

I wish I could invest in AWS apart from AMZN.

on a PE basis, AMZN is the most expensive large cap stock on planet Earth.

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