Mr. Market turns on Amazon

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denovo
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Mr. Market turns on Amazon

Post by denovo »

http://www.forbes.com/sites/ryanmac/201 ... -earnings/
Amazon.com AMZN +0.03% dramatically increased sales in its third quarter but still managed to miss wide of the mark on loss estimates for its third quarter, sending the company’s stock down more than 10% in after-hours trading on Thursday.

That drop is just the latest sign that investors may be fed up with the company’s lax approach to its bottom line. While Amazon launched a slew of new electronics gadgets and completed its second-largest acquisition ever with the purchase of video game live-streaming company Twitch this year, losses continued to widen.
I suspect the vast majority of people here do not invest in individual stocks in any appreciable way, but I bring this up to point out the unpredictable and fickle nature of Mr. Market. Amazon has never had sizable profits, but revenue was growing at breakneck pace and that has been enough to allow Amazon's stock price to climb. No more, it seems.
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littlebird
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Re: Mr. Market turns on Amazon

Post by littlebird »

Sure boss, we're takin' a loss on each item, but we'll make it up on volume." :oops:
thenextguy
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Re: Mr. Market turns on Amazon

Post by thenextguy »

It was that stupid phone.
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bogleblitz
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Re: Mr. Market turns on Amazon

Post by bogleblitz »

as of right now, amazon has a P/E of 822.97. Is that correct? How can it be that high when the average is 15.

Does that mean amazon stock can drop 98% to get to a P/E ratio of 15?
thenextguy
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Re: Mr. Market turns on Amazon

Post by thenextguy »

bogleblitz wrote:as of right now, amazon has a P/E of 822.97. Is that correct? How can it be that high when the average is 15.

Haha! Good question. This is what happens to stocks that are believed to have tremendous growth potential or believed to be "game changers" in their industry.
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CyberBob
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Re: Mr. Market turns on Amazon

Post by CyberBob »

bogleblitz wrote:as of right now, amazon has a P/E of 822.97. Is that correct? How can it be that high when the average is 15.

Does that mean amazon stock can drop 98% to get to a P/E ratio of 15?
In December of 2112 Amazon's P/E was 3,600 :shock:
It could actually be worse, however. Some companies don't even have a P/E ratio because they have no earnings, and you can't divide by zero.
dgdevil
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Re: Mr. Market turns on Amazon

Post by dgdevil »

AMZN accounts for a sizable part of some mutual funds, and 6% of XLY. I recall some fund managers at T. Rowe Price admitted that AMZN was a drag on their half-year results.
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denovo
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Re: Mr. Market turns on Amazon

Post by denovo »

In 2013, Amazon had 74 billion in Revenue and a net income of only 274 million. Despite this, their stock price went up 58 percent that year. In 2014, Amazon is projected to have about 90 billion in revenue and their share price has dropped about 25 percent.
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Toons
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Re: Mr. Market turns on Amazon

Post by Toons »

denovo wrote:In 2013, Amazon had 74 billion in Revenue and a net income of only 274 million. Despite this, their stock price went up 58 percent that year. In 2014, Amazon is projected to have about 90 billion in revenue and their share price has dropped about 25 percent.
Take the long view,the numbers bode well for long term investors :happy
3 stock splits later,,2 two for 1 and 1- 3 for 1

http://www.stocksplithistory.com/amazon-com/
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lululu
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Re: Mr. Market turns on Amazon

Post by lululu »

So does this mean Amazon has been steadily losing money? If so, where does that money come from? Selling stock? Borrowing more and more? Inquiring minds who do not follow individual stocks want to know :happy
autonomy
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Re: Mr. Market turns on Amazon

Post by autonomy »

I'm too lazy to look up the exact numbers, Amazon's stock dropped around 9% after each of the last 2-3 earnings reports. There was an article out today saying that the put/call options chain was betting on a 7.5% move (either direction).

Amazon actually lost money this time... they lost money on the Fire phone, they bought a bunch of stuff (e.g. twitch.tv for $1bil). As another article put it, 'investors are tired of waiting for the profit spigot to open up'.
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Re: Mr. Market turns on Amazon

Post by bhsince87 »

I owned shares for 4-5 years, and did well with it. But I sold out a few years ago.

I am nearing retirement and reducing my exposure to individual stocks, and it was one of the first to go.

I realized it was my most speculative "investment", by far.
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ogd
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Re: Mr. Market turns on Amazon

Post by ogd »

Amazon has so little earnings because they constantly expand. Those who read the full reports (clarification: this isn't me) and not just the P/E ratio can see that it's a very profitable business, for a retailer at least.
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ray.james
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Re: Mr. Market turns on Amazon

Post by ray.james »

Amazon has constantly invested their profits to make more money. They actually do make money on retail business. The last 2 misses were more due to phone and other costs.

But yeah at 75B revenue they better show atleast 1% profit :P
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Ged
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Re: Mr. Market turns on Amazon

Post by Ged »

ogd wrote:Amazon has so little earnings because they constantly expand.
How much of that is focused on relevant projects and how much frittering away earnings on ridiculous side projects?

Image
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ogd
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Re: Mr. Market turns on Amazon

Post by ogd »

Ged wrote:How much of that is focused on relevant projects and how much frittering away earnings on ridiculous side projects?
No idea. I would guess very little. It's easy enough to find out once you go past that P/E number and start digging a little.

There's no better way to suck the life out of this type of company than demand a focus on the core business. If you want Microsoft, it's easy enough to buy Microsoft. Or Barnes and Noble.
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Re: Mr. Market turns on Amazon

Post by flyingaway »

I don't understand why reasonable people would buy Amazon stocks. Any company can create increasing revenues by keeping losing money, they just need to lower the prices enough. Same thing goes to Netflix, I had a Netflix account when they gave it away for free. That was the time Netflix claimed to have increasing memberships and the stocks went sky high.

IMO, they are not different from Bitcoin, you can make money if you buy and sale at the right time, as a trader, not an investor. Someone will lose money if not you.
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Re: Mr. Market turns on Amazon

Post by Valuethinker »

lululu wrote:So does this mean Amazon has been steadily losing money? If so, where does that money come from? Selling stock? Borrowing more and more? Inquiring minds who do not follow individual stocks want to know :happy
AFAIK they have not issued new stock (other than executives exercising stock options) in several years. They have issued bonds, but that would be included in the debt figures.

You'd have to plot Amazon's cash and debt (gross interest bearing liabilities including leases) for a few years to see whether they are consistently cash flow positive, neutral or negative. The Enron problem (concealed by complex accounting trickery) was rising profits but falling cash flow: they were quietly going broke building the 'utility of the future'.

A couple of tricks: operating leases can conceal off balance sheet finance (rather than a finance lease, which is shown on the balance sheet, you just get a rising rental charge in the notes to the profit and loss account).

What I think is happening (without doing the homework) is that Amazon is making money (Cash Flow from Operations is positive before Cash Flow from Investing Activities) but then ploughing it back into capex. Hell for leather expansion both vertically (in the UK they now have their own delivery operation, besides a huge warehousing and fulfillment business) and horizontally (Kindle Fire, Kindle phone etc.).

That high level of investment gives you a high depreciation charge, and so at the bottom line a loss or minimum profits.

Retail is a low margin business everywhere. Amazon doesn't have to deal with stores, and operations like Kindle (once the reader is made and sold) have very low marginal cost. But I am not sure that one can 'defy gravity' forever by having a no store model. The internet imposes its own costs.

Businesses like the server business just suck up capital, although the growth has been impressive.

The exciting bit of Amazon was the marketplace where Amazon gets the revenues but not the costs nor the working capital implications of fulfillment. However they now fulfill for some of their marketplace suppliers.
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Re: Mr. Market turns on Amazon

Post by Valuethinker »

Ged wrote:
ogd wrote:Amazon has so little earnings because they constantly expand.
How much of that is focused on relevant projects and how much frittering away earnings on ridiculous side projects?

Image
I could never figure out whether this was:

- shrewd PR on a very small internal investment
- there actually *is* a business model around near instantaneous delivery
- a sign that they are getting (fatally) distracted by 'neat things'

I do know from friends who worked there in the UK that it is famously hard nosed and hard working as a place to work. From the people down in the warehouses (who are electronically tracked, receive counselling about bleeding feet, and are 'encouraged' by their managers to increase productivity, or they are out) to the top UK execs. This is not Google, there is no sense of playfulness in the company.
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denovo
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Re: Mr. Market turns on Amazon

Post by denovo »

I wonder why people think Amazon air delivery is foolish. I suspect if they can get regulatory approval and people are ok with these mini-drones (awful PR, calling them drones) zooming through the skies and in their neighborhoods it would be a remarkable achievement. I suspect it would be much cheaper than delivery drivers and imagine a lot of businesses could take advantage of this like restaurants who want to do take-out. :mrgreen:
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FedGuy
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Re: Mr. Market turns on Amazon

Post by FedGuy »

Valuethinker wrote:Amazon doesn't have to deal with stores
I've read that Amazon is opening a store in New York City, and may already have one in Seattle and one or two other places. I wonder if this falls into the category of "quirky side-project" that many believe is costing Amazon money.

Of course, your point is well-taken in that a handful of stores does not significantly change Amazon's business model.
Dandy
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Re: Mr. Market turns on Amazon

Post by Dandy »

He seems to be building an empire that will be hard to beat. But, it takes decades and billions and most stock investors want some gains during their lifetime not decades from now. So, Amazon may have the winning business model but will investors trust and hang on. I'll stick to Total Stock Index and watch from the sidelines.
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Re: Mr. Market turns on Amazon

Post by Beliavsky »

What have been the historical returns and risks of money-losing companies? Obviously a company that forever loses money is worthless, but some unprofitable companies later become profitable.
Valuethinker
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Re: Mr. Market turns on Amazon

Post by Valuethinker »

FedGuy wrote:
Valuethinker wrote:Amazon doesn't have to deal with stores
I've read that Amazon is opening a store in New York City, and may already have one in Seattle and one or two other places. I wonder if this falls into the category of "quirky side-project" that many believe is costing Amazon money.

Of course, your point is well-taken in that a handful of stores does not significantly change Amazon's business model.
Retail has been a stunning Apple success story (much to my surprise).

Basically as a window on the consumer for Apple branded products (which they may then well go and buy online). Apple's lack of a dealer network like Windows PCs have turned out to be a significant competitive *advantage*: no way to go into competition with your own retail customers.

Amazon? Not sure what Amazon sells that justifies the brand presence. However in high profile retail locations that might work.

I think Bezos wants to run the world's largest retailer. If you think about WalMart though it's a very different time and strategy. Or IKEA, say.

I don't know anyone at Amazon now but I can guess from what my friends said that the internal pressure on the managers (and staff) will now be ratcheted up. Whether they cut back on some of the crazy diversifications (a la Starbucks rationalization) I don't know.

They say that Amazon and Google are increasingly competing head to head re online shopping and maybe that is what this is about. For me it has been the delivery reliability of Amazon (plus a willingness to refund on a $250 hard drive which got 'lost' (I suspect stolen from our office reception)) that has made me such a good customer.
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Re: Mr. Market turns on Amazon

Post by davebo »

The only thing that keeps amazon's stock price from tanking is the fact that people justify holding the stock because they like the company personally and shop their often.

It's not surprising amazon is having a hard time making money. The stuff that is stocked by and sold by amazon is priced SO CHEAP.
IPer
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Re: Mr. Market turns on Amazon

Post by IPer »

Is this a perfect example of Mr Market reverting to the mean? Hindsight is 20-20, we'll know in a decade or so, won't we?! :wink:
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denovo
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Re: Mr. Market turns on Amazon

Post by denovo »

davebo wrote:The only thing that keeps amazon's stock price from tanking is the fact that people justify holding the stock because they like the company personally and shop their often.
I have trouble with this argument. Mom and pop investors aren't a significant part of the stock market. Hopefully, institutional investors aren't that daft.
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Chan_va
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Re: Mr. Market turns on Amazon

Post by Chan_va »

Investing for growth is not an irrational idea. History has shown that the most wildly profitable companies are monopolies or near monopolies. If management believes that they can corner the market, then it is in the shareholder interest to invest every penny and then some into growth.

You don't invest in Amazon for a steady dividend stream. You invest in them because they may become the next Standard Oil. I am not saying they can do that, but that's why the high valuations.
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Re: Mr. Market turns on Amazon

Post by lululu »

ogd wrote:
Ged wrote:How much of that is focused on relevant projects and how much frittering away earnings on ridiculous side projects?
No idea. I would guess very little. It's easy enough to find out once you go past that P/E number and start digging a little.

There's no better way to suck the life out of this type of company than demand a focus on the core business. If you want Microsoft, it's easy enough to buy Microsoft. Or Barnes and Noble.
Ask Xerox, which tossed away the personal computer business in the early 1980s because their core business was copiers and printers.
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Re: Mr. Market turns on Amazon

Post by flyingaway »

I just don't like this person to use public's money to try all his crazy ideas. Even venture capitalists need feasibility study. Yes, he could use a drone to deliver toilet paper to someone who just needs it, at what cost?
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Re: Mr. Market turns on Amazon

Post by freebeer »

Amazon's present valuation is in effect a probabilistic blend between highly disparate bullish and bearish forecasts, but in that respect it's no different than any other growth stock and debating "bull" vs. "bear" futures doesn't seem particularly constructive.

And is this even an appropriate discussion on this forum? I mean Amazon is not a "classic" company (in either growth or value pattern) so there are certainly interesting things to debate about how it should be valued ... but if this is then just an argument about whether the market is presently under- or over-valuing its stock ... that seems to be more in the realm of stock-picking forums. The basic principle we adhere to is that expecting to beat the market is a loser's game.
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Re: Mr. Market turns on Amazon

Post by Chan_va »

flyingaway wrote:I just don't like this person to use public's money to try all his crazy ideas. Even venture capitalists need feasibility study. Yes, he could use a drone to deliver toilet paper to someone who just needs it, at what cost?
This is exactly why the markets are so brilliant. Those who think it's the future of toilet paper buy Amazon stock. Those who think it's dumb don't buy the stock or short it depending on their conviction level. And the market weights and sorts thousands of these opinions in real time.
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Re: Mr. Market turns on Amazon

Post by tacster »

Valuethinker wrote: I do know from friends who worked there in the UK that it is famously hard nosed and hard working as a place to work. From the people down in the warehouses (who are electronically tracked, receive counselling about bleeding feet, and are 'encouraged' by their managers to increase productivity, or they are out) to the top UK execs. This is not Google, there is no sense of playfulness in the company.
Bleeding feet?
INSERT PITHY QUOTE HERE
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Re: Mr. Market turns on Amazon

Post by Caduceus »

Valuethinker wrote:I do know from friends who worked there in the UK that it is famously hard nosed and hard working as a place to work. From the people down in the warehouses (who are electronically tracked, receive counselling about bleeding feet, and are 'encouraged' by their managers to increase productivity, or they are out) to the top UK execs. This is not Google, there is no sense of playfulness in the company.
I read Brad Stone's The Everything Store: Jeff Bezos and the Age of Amazon, and have wanted to visit a fulfillment center ever since :) It is amazingly fascinating. Apparently, one enterprising worker managed to create a little home among Amazon's vast piles of goods. He ate, drank and lived for free until one manager wondered how he was able to clock in and out for his work hours without ever leaving the building. There are also supposedly fully automated systems with arrows and flashing lights that direct individual carriers to the correct track to gather the various items.

A lot of strategy probably turns on Bezos' personality. One holiday season he smacked down his executives for not wanting to stock an ambitious array of toys from Toys "R" Us because they weren't sure they could sell that much. Bezos said that establishing Amazon as the go-to store for anything was more important even if they couldn't sell most of the season-specific holiday stuff. One employee subsequently came to the company party dressed as "Excess Inventory." (Hilarious!)
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Re: Mr. Market turns on Amazon

Post by lululu »

flyingaway wrote:I just don't like this person to use public's money to try all his crazy ideas. Even venture capitalists need feasibility study. Yes, he could use a drone to deliver toilet paper to someone who just needs it, at what cost?
It's not like it's tax money. People are buying this stock or banks are lending money by their own choice. It's not your money (unless you own amazon stock, in which case if you don't like what he's doing, sell the stock.)
bhsince87
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Re: Mr. Market turns on Amazon

Post by bhsince87 »

Caduceus wrote:
I read Brad Stone's The Everything Store: Jeff Bezos and the Age of Amazon, and have wanted to visit a fulfillment center ever since :) It is amazingly fascinating.
I had the pleasure of visiting one a few weeks ago.

It was not the sweatshop environment you might read about elsewhere, nor was it a super high tech wonderland. In fact, I'd say it was technically behind some of the more automated warehouses I've seen.

But that's not necessarily a bad thing. The humans involved were actually thinking and making decisions that can't be practically automated yet.
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Re: Mr. Market turns on Amazon

Post by aloof »

Why Amazon Has No Profits (And Why It Works)

[link reformatted by admin LadyGeek]
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kenyan
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Re: Mr. Market turns on Amazon

Post by kenyan »

CyberBob wrote: In December of 2112 Amazon's P/E was 3,600 :shock:
What did Geddy Lee have to say about it, or was he mum on the topic?
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Valuethinker
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Re: Mr. Market turns on Amazon

Post by Valuethinker »

aloof wrote:Why Amazon Has No Profits (And Why It Works)

[link reformatted by admin LadyGeek]
Thank you. Very interesting.

Roughly I think what we thought. Mature businesses generating cash, reinvested in new growth opportunities. PE is not a good guide given the scale of capex/ depreciation. Free Cash Flow is better.

hard to value something like that.
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Re: Mr. Market turns on Amazon

Post by Flashes1 »

Amazon's business plan is to drive out as many brick-and-mortar retailers as they can-----then raise prices. Brutally effective.

I love capitalism.
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Re: Mr. Market turns on Amazon

Post by KyleAAA »

Amazon's margins are actually quite good, but earnings tend to be very low because they reinvest an insane amount back into the business (hence sales growing rapidly). One of these days the market is betting Amazon will stop reinvesting so heavily and will reap massive profits. Knowing Bezos' personality, I wouldn't bet on that happening anytime soon.
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denovo
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Re: Mr. Market turns on Amazon

Post by denovo »

KyleAAA wrote:Amazon's margins are actually quite good, but earnings tend to be very low because they reinvest an insane amount back into the business (hence sales growing rapidly). One of these days the market is betting Amazon will stop reinvesting so heavily and will reap massive profits. Knowing Bezos' personality, I wouldn't bet on that happening anytime soon.

People have said that multiple times , but it's completely unsubstantiated when you look at their balance sheet.

http://financials.morningstar.com/incom ... ture=en-US

Their operating income has been no higher than one percent the last three years. It was 4 percent in 2009 and 2010.
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Re: Mr. Market turns on Amazon

Post by KyleAAA »

denovo wrote:
KyleAAA wrote:Amazon's margins are actually quite good, but earnings tend to be very low because they reinvest an insane amount back into the business (hence sales growing rapidly). One of these days the market is betting Amazon will stop reinvesting so heavily and will reap massive profits. Knowing Bezos' personality, I wouldn't bet on that happening anytime soon.

People have said that multiple times , but it's completely unsubstantiated when you look at their balance sheet.

http://financials.morningstar.com/incom ... ture=en-US

Their operating income has been no higher than one percent the last three years. It was 4 percent in 2009 and 2010.
Look at the cash flow statement. Were it not for HUGE CapEx expenditures, their FCF would be quite healthy.
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