The Party Is Over for Amazon
newrepublic.com
newrepublic.com
I think that, when it comes to Amazon, TNR has a giant chip on its shoulder. I think a lot of this criticism has to do with a liberal arts-educated, New York and Washington-based cultural elite that sees itself as eclipsed by Seattle and Silicon Valley upstarts who studied computer science.
[1]http://www.newrepublic.com/article/119875/margo-howard-amazo...
I had a good laugh when I read about their latest bond offering (very smart considering the interest rate environment and the impending rate hikes) and Moody's subsequent downgrade. Bezos is trolling Wall Street and Wall Street is not happy.
(I live in Washington, and studied the liberal arts as an undergraduate. But so far nobody has identified me as part of the cultural elite. I'd love to blame this Amazon, but can't quite see how.)
> Amazon’s newest investments aren’t paying off. The most notable failure has been the Fire phone, which has received terrible reviews. > And the Fire phone was a big bet that has not worked.
He says this as if the Fire phone will now be canceled so that Amazon can try some other random experiment. The Fire phone was the first iteration of what will be a very long experiment, the same as every other product launched by a large corporation (e.g., Android, iOS, Kindle Fire tablet). How many times have we heard "It's over, Google's Android is finished" in the past decade, only to now see Android sales accelerated way beyond iOS and iOS sales stagnate?
The above is obvious to anyone who follows tech, thus leading me to believe the author has crafted a hit piece.
Disclaimer: I am employed by Amazon and own Amazon stock.
Many large internet companies have fundamentally dubious business models. Google and Facebook come to mind, both have advertising as their primary source of revenue, making their users the product.
Amazon, on the other hand, provides something of enormous intrinsic value: the supply of any and all physical goods that can be put in a warehouse. This business is not going anywhere, and Amazon is only going to get better at it (faster, lower overhead, more products).
In the scheme of things, Amazon's other offerings (AWS included) are relatively unimportant. IaaS and PaaS are relatively fungible, as is evidenced by Amazon's competitors (i.e Azure). Taking a loss of a few hundred million dollars on the Kindle Fire is a rounding error relative to Amazon's revenue, the amount invested yearly on new infrastructure and capital reserves.
Also, if Amazon is issuing unsecured debt, it simply means more capital is needed to sustain the desired rate of infrastructure investment.
EV/Sales (LTM and Forward) are much more in line with other comparables.
No denying that many Amazon investors are bullish, but this is not the metric to prove that point. Other relevant drivers at play.
A Carl Icahn type (or more likely Carl Icahn himself) could potentially force Jeff to reconsider the detached attitude.
Because in the context of the 75 billion in revenue needed to generate the 273 million in profit, thats a profit rate of 0.0004%. So every tiny false step puts the company in the red.
The numbers basically show that amazon rides a conceiled loss leader strategy for many years now. Thats traditionally a quite risky move, because once you've crushed competition and saturated the market, you've reached the point where you have to make profit or go insolvent. But generating profit would involve raising prices, which would give the competition more breathing space - amazon essentially has to give up market share to not go bankrupt.