It seems like Amazon's numbers are moving upwards, a good direction. Also, like many retailers, Amazon will have relatively low margins.
Amazon is taking a beating on Wall Street as the retail and cloud giant posted numbers that, although strong, were short of analyst expectations. The house of Bezos saw its stock price fall 13 per cent after the release of its quarterly and full-year financials. However, Amazon noted large gains in key areas, including the AWS …
It seems like Amazon's numbers are moving upwards, a good direction. Also, like many retailers, Amazon will have relatively low margins.
And plenty of low-paid workers who can be easily replaced...
From the numbers presented, Amazon is a non-profit web retailer. They make all their profits from cloud services. The old joke about "losing money on each sale, but make it up in volume" is actually true for this company.
Retailers, Low Margins - really? Manufacturers / producer margins tend to be low - screwed down by the retailers and a trail of suppplier middle-men.
@ Graham Marsden
"And plenty of low-paid workers who can be easily replaced..."
I wonder if the reason they are low paid is because of the low skill requirement and that they can be easily replaced. That would suggest a lot of low skill people who otherwise wouldnt have jobs nor the opportunity to be employed.
Sounds win win. Lower skills not excluding people from the workplace thanks to Amazon, and a source of income and employment for people without the capacity or interest in more skilled work.
I just saw an idiot analyst at Reuters who wants the company split. He didn't understand that the retail operation runs on top of the cloud services, and the cloud services started as excess capacity the retail bits didn't need. You can't really split them.
Indeed. Split them, and then you'll have Amazon retail having an even rougher time, as the cost of running their business increases as they'd either need to pay a fee to the AWS business, find a different provider and pay them, or rebuild their infrastructure in house again, and the AWS business wouldn't exactly do it for zero profit.
All a split would do is decrease profit margins for the retail business.
I've been arguing for years that the digital services are far more valuable than the no-margin warehousing and delivery shit. The sooner it's split the better.
> He didn't understand that the retail operation runs on top of the cloud services...
I pretty sure they would be aware of this, however it doesn't mean this needs to be the case. If the companies split they would just purchase cloud capacity as any other customer would.
> ...and the cloud services started as excess capacity the retail bits didn't need.
No it didn't, this is a common myth.
> You can't really split them.
Of course you can. Just like plenty of other businesses run sites on AWS I am sure Amazon.com could continue to run on AWS if the companies split.
"numbers that, although strong, were short of analyst expectations"
Sales up 22%, profits double, AWS profits triple, but the "investors" (we're not told who) are "furious"? Someone took a gamble on the stock market and got it wrong. My heart bleeds for them.
Overall earnings are less than 0.6% of sales for the year, and none of that was from their main business as a web retailer. AWS generated more profits than the total for the company. That means retail sales actually lost money on the year.
If you are an *impatient* investor and only look at quarterly results, yes, that would be a bad result. But I look at it as Bezos is playing the long game. He's in the process of displacing a big chunk of retail storefronts. Once he has skimmed off a segment of that huge market, *then* he can stop spending on growth and return profits.
Well, you know how investors are "That's it? We expected more.". So the company serves the results on a silver platter: "What? Where's the good china?". Investors always want more and they want it now. Not in a year, not in a month.... NOW!!!!
Well tough luck for them. Bezos doesn't give a shit what they think, and he's very much in charge of the thing...
@Mark 85 - and that is exactly what is ruining our world. So many investors wanting a quick buck, ignoring long term consequences, long term stability and long term income. All it does is cause businesses to fail, and usually has some side effects too.
...Sales up 22%, profits double, AWS profits triple, but the "investors" (we're not told who) are "furious"? Someone took a gamble on the stock market and got it wrong. My heart bleeds for them..."
Profits double but their investors are furious??
Hundreds of millions a quarter...yeah I'd be furious, too.
The fact that the profit was hundreds of millions on its own is irrelevant, what is relevant is that profit compared to the expected profit. The stock price was based on the expected profit, the actual profit was less so the stock price dropped and inverters lost paper money (unless they sold, in which case they lost real money, or more likely lost expected profit). (This is my very basic understanding, I'm sure some will explain in more detail).
Either the analysts cocked up on their projections, or the company underperformed. who knows.
If you did some work and made £100 profit is that a good thing or not? If you invested £5 and were expecting to make £10 profit, then it is good. If however you invested £10k and expected to make £5k then its very very bad deal.
Let's face it - that right there is the problem. Projections are just guesses. They might or might not be educated guesses but ultimately it's saying "we did this before and we now expect to do this next time".
As others have pointed out, there is also a lack of patience and the long view.
It is just a cycle of optimism (greed, in some cases) and disappointment or delight (or anger).
But ultimately it's a guessing game based on the hope that since shares have tended to only rise over time, they'll continue to do so.
My point was this - these very same people who guessed how much they'd make (and I'm talking about the analysts) are the very same people who seem to lack the understand, patience and vision of what makes Amazon what it is. They are the very same kind of people who, during the recession talked about the likes of Microsoft making a loss for the first time ever when what they really meant was they weren't making the kind of profits they had previously.
Blind, leading the blind, leading the gullible.
"If you are an *impatient* investor and only look at quarterly results, yes, that would be a bad result."
Amazon is 21 years old FFS, how *patient* are investors supposed to be?
Walmart makes 3% net profit to revenue, to its not like he's chasing a pot of gold there. More a pot of pennies.
"But I look at it as Bezos is playing the long game. He's in the process of displacing a big chunk of retail storefronts."
With big computerized shipping warehouses and expensive individualized shipping costs. You can pretend he's undercutting bricks and mortar, but Walmart is profitable and he isn't. Despite both of them selling in the same market.
Capital spends don't come from profits, so it's not that profits are being spent on expansion. Capital expenditure isn't removed from the profit figure. He just can't make a profit on his business.
The big dream I suspect for investors is that Amazon will get monopoly advantage over price. How'd that work out for Tesco?
You're right on the money. Billions of revenue but less profitable than PC makers...
"what is relevant is that profit compared to the expected profit. The stock price was based on the expected profit, the actual profit was less so the stock price dropped and inverters lost paper money "
And that is what is so patently wrong about the whole system. Some voodoo guy looks at the chicken entrails and guesses on a companys forthcoming performance inflating the share price and when s/he guesses wrong the share price tumbles. Good, solvent and profitable companies can and have gone to the wall based on this voodoo magic.
Amazon's P/E ratio (after the stock price drop) is about 750. Apple's is 10. Apple made double the profit in a week in their last quarter as Amazon made all year, but their market cap is barely twice that of Amazon!
That's how overvalued Amazon is even after the ~13% after hours price drop...
They have a long long long way to fall - this is the only dot com stock from 2000 whose investors still haven't woken up to reality. I don't think this will do it, and it may take a few years yet (so don't waste your money shorting it) but it will happen eventually, mark my words.
A business that sells $100bn in goods in a year has more than enough potential. Amazon has always been about the long game, and investors don't seem to be able to understand that.
If Amazon stopped spending on R&D, expansion and the like, they'd have a much higher profit margin - for a short period of time. Then, after that period had passed, someone else would've come along and innovated their way past Amazon and Amazon would end up like any other forgotten, shrinking retailer.
Amazon is in an industry that is ever changing. In order to ensure long term profits, it has to invest a lot of its income in the future.
If you want quick profits, go bet on a horse.
Recent article explaining why Apple at P/E of 10 looks much better that it really is, and why Amazon is not as bad as it looks against it's own high P/E:
iAmazon is in an industry that is ever changing.
Which is industry would that be? And the industry that Apple is in isn't always changing?
Both companies have traditionally fobbed off investors demands for money by pointing at the share price instead of the dividend. This has largely been self-fulfilling. However, at some point the P/E ratio becomes so high that people don't want to play any more and demand cash either as dividends or share buybacks. Amazon is still cheap enough for an activist to get on the board.
My point is that investors are giving Amazon WAY too much credit. Do you seriously think it is undervalued?
Sure, they do $100 billion in revenue but they have $99.5 billion in cost, leaving a margin of only 0.5% for profit. They can't do much to further cut costs, because almost all of their cost is the wholesale cost of the products they are selling you. They can't do much to raise their prices, because if they do people will go to Walmart, newegg, or one of the countless thousands of other companies who are reselling many of the same goods and would be priced lower if Amazon tried to raise their prices.
You even admit yourself that they can't stop their spending on expansions etc. because it wouldn't lead to long term profits. So basically Amazon is going to earn 0.5% profit margins forever, and you think that justifies their ridiculous share price? In order to match Apple's profits last fiscal year, Amazon would have to grow their revenue from $100 billion to $10 trillion. Do you think it is possible Amazon could grow 100x? Investors seem to think so, as their multiple indicates a future growth of 75x in profits. So either they are going to get 75x bigger, or they are going to manage to collect margins of 37.5% (good luck getting people to pay 35%+ more than everyone else for the same products)
That's a stupid article. They show the growth, peak and decline of the iPod, show the iPhone's growth and imply that it will peak and decline like the iPod. The reason the iPod peaked and declined was because it was replaced by another product that included its functionality. What's the point of a standalone music player when the phone you are already carrying can now do that job also? Same reason for the decline in the pocket camera market, or GPS, etc.
That makes the smartphone more important than the iPod ever was to people because it does so much more. The replacement cycle of iPhones may lengthen as new ones don't offer as compelling reasons to upgrade, but that would not result in a decline as steep as the growth like the iPod, but merely a slow decline that levels off. Until someone replace the smartphone with brain implant or something people are likely to be carrying one around for a while. There's no reason to expect that people who prefer the iPhone today are going to switch tomorrow just because there are cheaper Android alternatives - that has been the case for several years already and Apple gains 3-4x more switchers from Android to Apple than are lost from Apple to Android.
The currency risk is an issue but only if the US dollar keeps getting stronger. That will equally affect any US company that does a lot of business overseas, but at some future day if the pendulum swings the other way and the dollar weakens then it will act as a growth accelerator. Given how low oil prices are now, unless they bottom out to $10 like some people believe, there's unlikely to be much additional strengthening of the dollar.
Make minimal profit, so you pay no tax.
It's not a very *good* tax dodge, though, is it?
If we make a $million in profit we'll pay $350k in tax and only have $650k left!
Why don't we *not* make a profit? That way we get to keep the *whole* of our nothing at all! We've shafted the taxman, and it's only cost us $650k... oh, wait...
But you've got $1M invested in future research, diversification, hardware or infrastructure rather than $650k profit and
Back in the '90s, every week someone on Wall Street would predict the imminent demise of Amazon and Bezos. The joke's on WS and has been. Many of them still don't "get it".
Many of them still don't "get it".
Sigh. I bet you also believe that "this time it's different"?
It's Amazon who is at fault here! I mean, Wall Street market analysts are never wrong are they?
After looking at all the numbers and correlating them , they make a guess about the future, so what could possibly go wrong?
My heart goes out to those poor unfortunate investors who will be reduced to eating red caviar this quarter.
Analysts.. alternative ANAL-ists people far too interested looking up the backsides of others.
They are the people who charge a second group of people a fortune to share their guesses (sorry detailed expert forecasts) about a third group of people. Which of course when reality disagrees it's realities fault.
If these guys are so good why don't they take their own advice, make a fortune, and spend the rest of their lives counting their own money.
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