Amazon’s Shrinking Profit Sets Off a Seismic Shock to Its Shares
nytimes.com
nytimes.com
In all seriousness, 8-10% is a big move, but definitely not "seismic", especially after an earnings release. Apple went up that much yesterday. Today YELP fell 8% and TWTR fell over 7%.
Unless there's another reason for this sell-off, it means perhaps Amazon's teflon-coating when it comes to it's profit-aversion might be wearing a bit thin.
That's a shift.
Yet, how do you tell when Amazon are about to do that? I would've thought they'd do it when revenue growth starts slowing. ie. When the strategy of spending money to make money starts being less effective, as there is steadily harder gains to be got from it. That's when I'd turn on the tap.
So just as Amazon are about to do this (potentially anyway), that's when people sell? I'd say this is by far the best time to buy...
Amazon will never do that, because it can't. It's in retail. Retail is and always will be a low margin business.
Is there an example of a large retailer that doesn't manufacture its own goods that has profits in the double digits?
I know that I find it a pain to shop elsewhere now, not just because of price, but because I've grown so used to the reliable delivery times of Amazon/Prime. I know almost to the hour when my packages are going to arrive. That's a killer feature worth at least a moderate bump in price before I'd shop elsewhere.
http://management.fortune.cnn.com/2012/11/16/jeff-bezos-amaz...
what would you rather invest in (assume there are no costs other than inventory to keep it simple).
A store that has $100K of inventory that turns inventory once a year with a 20% profit margin
or
A store that has $100K of inventory that it turns 10 times a year with a 5% profit margin
tell that to apple.
They're now the best mail-order retailer, and they've beaten out local merchants for some classes of goods. But there's a long way they can go in terms of beating local merchants for most of the rest of what people buy. My guess is that Bezos isn't slowing down until Walmart is hurting.
8% is one major mutual fund that needs its stocks to have certain ratios and profit margins had to do a sell off and technical traders went with the falling knife.
it's very close the MarketCap of LinkedIn -- more reason why $19 billion for an App that generates $20million in revenue is/was ridiculous.
My experience tells me which is no brainer, death (exit) of such a company is only matter of time, and when such a vendor dies, rest of the market lives on as they were living before this episode.
I don't really follow your logic. The point isn't to 'earn money' now. It is to build the economies of scale, over time, so that no one else can hope to compete with them on price in the future. That is when the money will really be earned.
As for Amazon not being profitable, it is a illusion. From what I understand, they have pretty high plowback. If mgmt observes great opportunities for investment, shouldn't they do that instead of paying out dividends?
>My experience tells me which is no brainer, death (exit) of such a company is only matter of time, and when such a vendor dies, rest of the market lives on as they were living before this episode.
Maybe if they were competing on price alone for a single product. This isn't one CRM product vs another. They are competitive on EVERY product. Few online retailers can compete with them on pricing/shipping/experience.
That time is never going to come, others are not sitting idly either. :) - since I am not american I don't know the precise terms to define such situation. But as we would say 'more clients, more profits' but in the end, you start losing customers, when you charge even pennies more, and you become a victim of your own.
>They are competitive on EVERY product
This is the misconception, they are not being competitive at all. :) they are only being arsehole :) as I would call such competitor in my own industry.
Being competitive means, they quote prices which has profit, however they blow away the competition by virtue of either their skills or costs.
Huh? The whole point is that they won't have to raise prices, the future will yield infrastructure cost savings. Competitors will have higher costs vs Amazon. So, they can charge LESS and make MORE than their competitors. Seems like a pretty simple strategy; foregoing profit now for increased competitiveness later.
>This is the misconception, they are not being competitive at all. :) they are only being arsehole :)
How so? If their business practices make you upset, I suppose that is understandable. But your comment just sounds like sour grapes...
To run an ecommerce business, you need IT, Warehousing, Logistics, (funding obviously just like any other biz) If you can generate tons of turnovers, vendors will lay down before you. What sort of infrastructure you were referring to., which other can not save on?
Amazon has had this mythical idiom of "when the market want us to give them profits, we will turn on the spigots". In other words, they can just scale back their future investments, and the money will start rolling in.
However, they have been running losses in general for 20 years. For a few quarters in their history, they made some small profits, but in general, even with all the dramatic scaling and efficiencies, they still regularly run losses. Investors have stuck with them for this long, but unless they really can start raking in the profits, I don't see how their stock can sustain such a high price.
If you look at the financials and business model, Amazon is basically the Walmart of the internet. They are in a low margin business, with high capital costs. However, their stock is still priced as if they are a software company with high gross margins (ie software costs zero to produce each additional copy). Walmart understands the model and is able to produce nice profits, and Amazon either has to follow or hopefully the market will finally figure them out and price them accordingly.
Year Revenue Net Profit %
---------------------------------
2013 $74B $275MM 0.3%
2012 $61B $-39MM -0.6%
2011 $48B $631MM 1.3%
Apples and oranges. Check AMZN revenue growth in the past 5 years vs. WMT. WMT is (somewhat) mature, AMZN doubles revenue roughly every 2.5 years.
Why show a profit if you don't have to? Management is obviously finding pretty good, revenue-growing investments.
> Why show a profit if you don't have to? Management is obviously finding pretty good, revenue-growing investments.
This is the nonsensical mentality that has blown up Amazon's stock price for more than the past decade. In the short term, absolutely, ramp up revenue and take losses getting there. In the long run, businesses exist to make the shareholders money.
Umm, Google is a ~16 year old company. In 4 years, will they be an 'old company'? Please...
>This is the nonsensical mentality
This is how huge, borderline monopoly business are built. I am not sure you grasp their strategy. It sounds like you may be more comfortable investing in a stable, dividend paying, old line business that you understand.
I could be wrong but I'm willing to bet on their ability to twist and turn in the face of market forces more effectively than their peers.
EDIT: thinking more specifically, here's what I recall (I browsed the doc as an intern last summer):
I believe that performance bonuses (which vest over a year?) are given a cash-value target in addition to a fixed # of RSUs to be granted. If, at the end of the year, the value of the RSUs (at time of grant) are less than the cash-value target, additional stock units are added to cover the difference.
This is the hazy memory of an intern, so, take it fwiw.
They have a number in mind that they wish to pay you. A portion of that will be in salary, and a portion of that will be in RSU's. At the time of the grant, they'll give a number of RSUs that have a cash value for the remainder that isn't covered by your salary.
The company is cheap - it's in the bones. There is no way the company would ever agree to give more of it's loot over to employees if it wasn't forced to via regulation.
Now, Google's "GSU" programme does have an adjustment that is based on company, personal and stock performance via a magical formula that only HR/management knows.
I'm an extremely questionable source. Amazon's "Frugal" was certainly everywhere, which is why I remember being surprised by seeing those terms in the performance bonuses.
FedEx/UPS + Amazon merger would still be a good move and lock up last-mile distribution that only WalMart would be able to touch, but then WM would have to pay a premium for whichever chair would be left.
Also, Google Express is way ahead given the number of trucks and cars going about from Costco and other local merchants, which is coming at Amazon from the other side.
Building it would effectively be starting from scratch and competing with FedEx, UPS, DHL and everyone else. And if it doesn't work, they'll be stuck with capital tied up in it.
Further, it's going to take a long time and a LOT of capital, and it still might not work AND still not be any better/cheaper, whereas FedEx is a known quantity that works. FedEx has a lot more experience than just delivery: it does lot of logistics and emergency logistics outsourcing for a lot of companies... and it would still be viable revenue if Amazon controlled them.
But really, what difference is there over just extracting the functionality of local courier into a stand-alone global service with an web presence, API, support, backoffice fleet management/dispatching and so forth? All FedEx and UPS have to do to compete with this is send drivers into stores.