[peterk]

Amazon has been put on my radar after reading the Maclean's article titled "Move Over Wal-Mart" this week. I've never invested into such a "growth" company before: I currently hold XOM, MFC, BAC, TEF, BBL, CNQ, RY, CAT. so Amazon is out of my realm, and the P/E near 100 I think is insane! It interests me thought because now that I think back through the year I've made several purchases through amazon, and not out of some sort of desire to buy online or anything. One item particularly, a high end kitchen knife, I looked in several stores, several website, and came to the conclusion that Amazon.ca gave me the best price with no hassle and no shipping cost. Last Christmas my 59 year old mother who often struggles with computer icons somehow managed to order herself a movie from amazon.ca.

What are people's thought on the movement of retail from phyisical stores to online?
To me it feels like the whole system is heavily dependent on shipping and shiping costs. I wonder if growth, in developing countries critically, would be hampered by a lack of shipping infrastructure? It would seem that Amazon would be smart to begin aquiring it's own shipping company. The issue of tax avoidance seems to be getting fought in the USA right now, with amazon seemingly winning despite states like california introducing bills to try and force taxation on companies like Amazon. Is this a battle that perhaps amazon will eventually lose, lowering their competitive edge as the consumer must pay more? Then again Amazon seems competetive in canada even with fair taxation.

 

[PMREdmonton]

The big question is whether they can grow earnings to justify their present valuation. I am skeptical of this possiblity. They have been increasing revenue but have been losing margin in the process.

The other thing is they have had a competitive advantage by avoiding state taxes. More and more states are rebelling against this because of their tight finances. If more of them jump in, it will be tough for them to undercut other sellers.

I think they are too speculative for me.

 

[Abha]

I had bought Amazon at $170 after an earnings miss and sold it around $220 this year. Regretted the move until the market totally collapsed.

I too am looking to get back in this one.

The PE is astronomically high but I think you could start to phase into this company taking partial positions.

 

[newbie]

amazon

beats the street but is down after hours......
eps more than double the estimates.
hmmmmm....

 

[newbie]

Amazon has been put on my radar after reading the Maclean's article titled "Move Over Wal-Mart" this week. I've never invested into such a "growth" company before: I currently hold XOM, MFC, BAC, TEF, BBL, CNQ, RY, CAT. so Amazon is out of my realm, and the P/E near 100 I think is insane! It interests me thought because now that I think back through the year I've made several purchases through amazon, and not out of some sort of desire to buy online or anything. One item particularly, a high end kitchen knife, I looked in several stores, several website, and came to the conclusion that Amazon.ca gave me the best price with no hassle and no shipping cost. Last Christmas my 59 year old mother who often struggles with computer icons somehow managed to order herself a movie from amazon.ca.

What are people's thought on the movement of retail from phyisical stores to online?
To me it feels like the whole system is heavily dependent on shipping and shiping costs. I wonder if growth, in developing countries critically, would be hampered by a lack of shipping infrastructure? It would seem that Amazon would be smart to begin aquiring it's own shipping company. The issue of tax avoidance seems to be getting fought in the USA right now, with amazon seemingly winning despite states like california introducing bills to try and force taxation on companies like Amazon. Is this a battle that perhaps amazon will eventually lose, lowering their competitive edge as the consumer must pay more? Then again Amazon seems competetive in canada even with fair taxation.

wow
now we have thread robery on the site

i will make it easy on u bud
i will delete my original thread so u can delight urself in the tropical stock
mods please delete my original thread so Peterk can rejoice.... thks

 

[CanadianCapitalist]

Actually, it was I who merged your thread with an older one because both threads are discussing AMZN. So, no thread robbery going on

 

[newbie]

Actually, it was I who merged your thread with an older one because both threads are discussing AMZN. So, no thread robbery going on

i am sure it was you or another Mod.
we do not have authority to move threads.
please delete my old one.
no need for it to exist.
just started thread because it hit the wires.
thks

 

[buhhy]

I really don't see how Amazon's valuation is justified. Their entire business plan revolves around low margins and undercutting their competition. Look at the kindle fire, it's sold at close to a loss so they can push their services. Also, their US tax evasion keeps their prices low. Once the states start realizing Amazon is a goldmine for tax revenue, and change the tax laws to remedy the loophole, Amazon's prices will have to rise. I really doubt their margins will improve; they'll probably get worse as marketing costs rise.

Also, Amazon pricing definitely isn't competitive in Canada. Their prices are usually much higher than eBay, and definitely higher than their US counterparts. Shipping costs is brutal as well, and their selection is paltry.

Somehow, some investors have this notion that Amazon's (/internet/cloud) growth is unlimited, and that it can grow its profits to fill in the PE gap. At least Walmart paid a dividend.

 

[atrp2biz]

Newbie...WTF? I'm not sure how to read those posts. Anyways...

Best Buy and Futureshop are my showrooms for AMZN. I study and play with the stuff in store and buy online. I think AMZN has changed the game.

 

[GOB]

beats the street but is down after hours......
eps more than double the estimates.
hmmmmm....

Maybe because they're guiding for a possible loss next quarter? 100+ P/E for declining margins and soon a business losing moeny? No thank you.

Also there's this nagging issue, and if these kind of things start going against Amazon, then say goodbye to having the lowest prices which is the main (only?) reason most people shop with Amazon to begin with.

The state of Arizona is seeking to collect about $53 million from Amazon.com Inc. (AMZN) in unpaid transaction taxes similar to a sales tax, the e-commerce giant disclosed in a filing with the U.S. Securities and Exchange Commission.

Arizona issued the bill, which includes tax and interest, in November for uncollected taxes between March 2006 and December 2010, the regulatory filing said.

"The State of Arizona is alleging that we should have collected a transaction tax that is similar to a sales tax on applicable transactions during those years," the company said in its filing. "We believe that the assessment is without merit and intend to vigorously defend ourselves in this matter," the company said in a filing with the SEC Wednesday.

Amazon has feverishly fought efforts to compel it to collect sales taxes. A year ago, the company said it would close a Texas distribution center amid a tax dispute with Republican State Comptroller Susan Combs, who said Amazon owed $269 million in uncollected sales tax due to the facility's physical presence in the state.

The company has been on a long, expensive investment campaign to improve its distribution network and digital offerings, but investors have grown increasingly exasperated by how long Amazon opts to sacrifice near-term profit for the goals.

On Tuesday, Amazon reported its fourth-quarter earnings fell 57%, and warned it could post an operating loss in the current quarter.

Shares slid by 51 cents to $178.94 in recent trading. The stock is done 17% in the past three months.

http://online.wsj.com/article/BT-CO-20120202-715842.html

 

[PMREdmonton]

The stock is a long-term play on the future of retailing and cloud entertainment. They are betting that their model is better than traditional bricks and mortar establishments. I think this is true for some things but not all things. This is a very low margin business that has benefitted from the lack of state taxes applied to online businesses.

I do think the company is good and will continue to grow and be successful.

I am not so sure about the stock. It is a market darling so long as it continues to innovate and grow margins which it has been doing.

As for the stock I would say this is a trading stock due to high valuations which it will have to grow into and I think it eventually will but it will go sideways for about 10 years just like former tech darlings like MSFT and INTC as well as companies like KO, PEP and WMT from their 2000 highs.

If you do not want to be a trader then this is not a stock for you. It is priced for perfect execution and will get slaughtered everytime it disappoints. However, the company is very strong and will be a major player in retailing until a better business model comes along.

The one thing I might suggest is actually buying its competition - in particular Walmart, Costco, Best Buy, Target and Staples which are all successful B&M retailers with good profitability - they have been beat up because of the expectation of a switch to etailing over time. Even if this happens I expect most of these companies to adapt and be profitable (with the possible exception of Best Buy).

 

[GOB]

I am not so sure about the stock. It is a market darling so long as it continues to innovate and grow margins which it has been doing.

That is incorrect. Their margins that were tiny to begin with have been shrinking steadily to the point that they're guiding for a possible loss this quarter. That will turn their P/E into a non-calculatable number. That's how dire the situation is, before even thinking about tax complications they are beginning to face.

There are so many better options in this market than investing in AMZN at this price. Even if it does turn around in a few years do people expect the P/E to remain at these levels? Where is the growth in the stock going to come from?

It blows my mind that a company like AAPL is priced for zero growth despite growing astromically for years, while AMZN is priced for astronomical growth but is making less and less money as time goes on. I won't complain - its easy money with little risk for people who can see what's staring them in the face.

 

[PMREdmonton]

That is incorrect. Their margins that were tiny to begin with have been shrinking steadily to the point that they're guiding for a possible loss this quarter. That will turn their P/E into a non-calculatable number. That's how dire the situation is, before even thinking about tax complications they are beginning to face.

There are so many better options in this market than investing in AMZN at this price. Even if it does turn around in a few years do people expect the P/E to remain at these levels? Where is the growth in the stock going to come from?

It blows my mind that a company like AAPL is priced for zero growth despite growing astromically for years, while AMZN is priced for astronomical growth but is making less and less money as time goes on. I won't complain - its easy money with little risk for people who can see what's staring them in the face.

Yes you are correct. I meant growing revenues and not growing margins.

The issue with Apple valuation is that it is in a field where a company rises and then eventually falls back to Earth. It has major competition from the likes of Google, Samsung, RIM and Nokia. While it is winning right now it is far from guaranteed that it will continue to dominate a business in which hardware tends to become commoditized quickly. I mean how quickly did it take for DVD player prices to come down to $50. Time will tell if they can continue to run a high margin business over many years in the smartphone and tablet areas. This is why they Apple gets assigned such a high multiple - the street doubts they can continue to dominate technology. They doubt this even more now that Jobs has passed away.

As for Amazon this is clearly not a stock for buy and holders. You will get nothing from this strategy with this company starting from this valuation and it faces lots of headwinds. You also do not get a dividend. As stockholders continue to see the stock go sideways the multiple at which it trades will plummet.

However, the plus side to Amazon is their business model is the way of the future and no one can compete with them in online sales right now. The street assumes they will eventually grow profit to match the business but I think that is going to take a very long time and the stock will be dead money for a decade.

 

[GOB]

Yes you are correct. I meant growing revenues and not growing margins.

The issue with Apple valuation is that it is in a field where a company rises and then eventually falls back to Earth. It has major competition from the likes of Google, Samsung, RIM and Nokia. While it is winning right now it is far from guaranteed that it will continue to dominate a business in which hardware tends to become commoditized quickly. I mean how quickly did it take for DVD player prices to come down to $50. Time will tell if they can continue to run a high margin business over many years in the smartphone and tablet areas. This is why they Apple gets assigned such a high multiple - the street doubts they can continue to dominate technology. They doubt this even more now that Jobs has passed away.

As for Amazon this is clearly not a stock for buy and holders. You will get nothing from this strategy with this company starting from this valuation and it faces lots of headwinds. You also do not get a dividend. As stockholders continue to see the stock go sideways the multiple at which it trades will plummet.

However, the plus side to Amazon is their business model is the way of the future and no one can compete with them in online sales right now. The street assumes they will eventually grow profit to match the business but I think that is going to take a very long time and the stock will be dead money for a decade.

But Apple is valued for ZERO growth going forward (forward P/E of around 9). Do you honestly believe that's likely? To lump Apple in with all the other players is unfair to the company and their unique business model. Yes, margins on tech products trend downwards, but how do you explain Apple's margins increasing while others decline? Clearly they are doing something different, and only they can do it. Similar to what people say about AMZN, I believe AAPL is very different and a standout in the sector. Another point on hardware commoditization - you should notice that Apple does not tout hardware specs nearly as much as their competitors. Apple wins on the software side, the design side and the innovation side - all potentially high margin factors that are not affected by commoditization. Apple doesn't compete on hardware - they simply produce the best overall package that combines performance, design and usability. They won't race to have the first phone with an 8-core processor - that is just marketing hype and they leave that to the others to scramble for. Nobody has been able to even come close to that in any of their product lines for years. If you understand the way they do things in comparison to their competitors it makes a lot of sense how they have kept such incredible margins and are quite likely to do so going forward.

Take a look at the Macbook Air - the selling point is that you are getting an extremely durable machine with good performance and battery life all in an extremely tiny and well designed package weighing 2-3 pounds. No other competitor can match this at the appropriate price to the point that Intel is offering money as an incentive for companies to try and replicate this product. Apple puts so much thought and work into every little detail that I find it extremely unlikely that another company is just going to walk in and do things better. This applies to pretty much all of their products.

Amazon is only dominant in sales because they offer consumers the lowest price. But they aren't making any money off it. What exactly is their plan to actually make some money? I don't see consumers being particularly loyal to Amazon - if they are forced to raise prices that are on par or even greater than brick and mortar retailers, why would people buy from them? Their entire competitive advantage would be gone. With commodity prices increasing and the tax situation looming, what can Amazon do besides raise prices?

Here's the past six years of data on Apple's average selling prices for their major product lines, keeping in mind Apple's costs for producing them likely decrease over time (www.asymco.com):

 

[buhhy]

Yes you are correct. I meant growing revenues and not growing margins.

The issue with Apple valuation is that it is in a field where a company rises and then eventually falls back to Earth. It has major competition from the likes of Google, Samsung, RIM and Nokia. While it is winning right now it is far from guaranteed that it will continue to dominate a business in which hardware tends to become commoditized quickly. I mean how quickly did it take for DVD player prices to come down to $50. Time will tell if they can continue to run a high margin business over many years in the smartphone and tablet areas. This is why they Apple gets assigned such a high multiple - the street doubts they can continue to dominate technology. They doubt this even more now that Jobs has passed away.

Apple has done what relatively few companies have done. They have built brand loyalty. Put that together with a tight ecosystem and you have an almost-impenetrable fortress. Sure you might say Android has slightly larger market share than iOS. But keep in mind that iOS not only makes Apple more money, but iOS developers also make more: 4-6 times approximately. Not to mention if you compare only the top-end Androids like SGS2, Galaxy Nexus, Nexus S, the iPhone comes out way ahead in marketshare. Really, Android's market-share is greatly overblown by the sheer number of cheap low-end devices.

Apple is the biggest brand in consumer electronics, with a huge ecosystem and unrivaled brand recognition. Every product they've released have been huge hits. Even the iPhone 4s, which was panned for being an incremental release, is the best-selling phone ever. Even if Tim Cook really flops everything from now one, it would probably take another 2 iPhone and/or iPad releases before they really go downhill.

The level of unrealistic pessimism surrounding Apple is almost as bad as the pessimism surrounding Microsoft. It's ridiculous really. Microsoft consistently increases its profits, and pays a dividend to boot, and the stock goes sideways for 10 years.

Meanwhile, you have shitty buzzwordcloudcomputingsocialnetwork stocks like CRM, AMZN, LNKD, P getting ridiculous valuations.

Anyways, enough with the rant. While Amazon is going to be around for a long time, I sincerely doubt they are ever going to improve their margins.

 

[PMREdmonton]

Apple has done what relatively few companies have done. They have built brand loyalty. Put that together with a tight ecosystem and you have an almost-impenetrable fortress. Sure you might say Android has slightly larger market share than iOS. But keep in mind that iOS not only makes Apple more money, but iOS developers also make more: 4-6 times approximately. Not to mention if you compare only the top-end Androids like SGS2, Galaxy Nexus, Nexus S, the iPhone comes out way ahead in marketshare. Really, Android's market-share is greatly overblown by the sheer number of cheap low-end devices.

Apple is the biggest brand in consumer electronics, with a huge ecosystem and unrivaled brand recognition. Every product they've released have been huge hits. Even the iPhone 4s, which was panned for being an incremental release, is the best-selling phone ever. Even if Tim Cook really flops everything from now one, it would probably take another 2 iPhone and/or iPad releases before they really go downhill.

The level of unrealistic pessimism surrounding Apple is almost as bad as the pessimism surrounding Microsoft. It's ridiculous really. Microsoft consistently increases its profits, and pays a dividend to boot, and the stock goes sideways for 10 years.

Meanwhile, you have shitty buzzwordcloudcomputingsocialnetwork stocks like CRM, AMZN, LNKD, P getting ridiculous valuations.

Anyways, enough with the rant. While Amazon is going to be around for a long time, I sincerely doubt they are ever going to improve their margins.

I think Amazon will slowly start to improve margins. They are working on becoming the dominant online retailer right now so they are squeezing all the competition out. Once this is done and there is minimal competition for them they will probably start to raise margins. Online retailing is going to be a major growth business for a long time so they have taken a very long-term strategy here of first becoming a great company and then focusing on becoming a profit machine.

I do not know if they will succeed.

The reason I think their margins will improve is they will get better and better at distributions. Right now they are continuing to build capacity with massive capital expeditures. Eventually the build out phase will consolidate and they will have massive economies of scale which they can put to advantage to squeeze suppliers and optimize their distribution network. So I think the margins will eventually improve.

I just think the stock has run so far ahead of its fundamentals that it will take a long time to get there.

 

[PMREdmonton]

Apple has done what relatively few companies have done. They have built brand loyalty. Put that together with a tight ecosystem and you have an almost-impenetrable fortress. Sure you might say Android has slightly larger market share than iOS. But keep in mind that iOS not only makes Apple more money, but iOS developers also make more: 4-6 times approximately. Not to mention if you compare only the top-end Androids like SGS2, Galaxy Nexus, Nexus S, the iPhone comes out way ahead in marketshare. Really, Android's market-share is greatly overblown by the sheer number of cheap low-end devices.

Apple is the biggest brand in consumer electronics, with a huge ecosystem and unrivaled brand recognition. Every product they've released have been huge hits. Even the iPhone 4s, which was panned for being an incremental release, is the best-selling phone ever. Even if Tim Cook really flops everything from now one, it would probably take another 2 iPhone and/or iPad releases before they really go downhill.

The level of unrealistic pessimism surrounding Apple is almost as bad as the pessimism surrounding Microsoft. It's ridiculous really. Microsoft consistently increases its profits, and pays a dividend to boot, and the stock goes sideways for 10 years.

Meanwhile, you have shitty buzzwordcloudcomputingsocialnetwork stocks like CRM, AMZN, LNKD, P getting ridiculous valuations.

Anyways, enough with the rant. While Amazon is going to be around for a long time, I sincerely doubt they are ever going to improve their margins.

Actually, assuming Apple to be a zero growth story is actually some optimism. The history of technology hardware is commoditization and low margins. First mover advantage has proven to be nil in the long run. Apple has to prove they can do what no one else has ever been able to do in technology hardware.

Do not get me wrong - Apple is by far my largest holding. I am just trying to explain the market skepticism for their multiple.

The other thing Apple is being punished for is their cash hoard. If they are not going to use it for acquisitions or R&D they should start distributing it back to the shareholders as a dividend. As a result, the street is assigning zero to the cash hoard.

Apple clearly needs to transition their business from a growth model to a value model now. While they may still continue to grow they need only a fraction of their cash hoard to do this so they should initiate a dividend. This will attract a bunch of buyers that right now avoid any non-dividend paying companies. This should push their multiple up a bit. They can easily afford a 2% cash dividend and they should initiate one this year.

 

[buhhy]

I think Amazon will slowly start to improve margins. They are working on becoming the dominant online retailer right now so they are squeezing all the competition out. Once this is done and there is minimal competition for them they will probably start to raise margins. Online retailing is going to be a major growth business for a long time so they have taken a very long-term strategy here of first becoming a great company and then focusing on becoming a profit machine.

I do not know if they will succeed.

The reason I think their margins will improve is they will get better and better at distributions. Right now they are continuing to build capacity with massive capital expeditures. Eventually the build out phase will consolidate and they will have massive economies of scale which they can put to advantage to squeeze suppliers and optimize their distribution network. So I think the margins will eventually improve.

I just think the stock has run so far ahead of its fundamentals that it will take a long time to get there.

Yeah, their margins might improve with more distribution centers. But I doubt they have significant room to raise their prices. Plus, it is uncertain how the US tax laws regarding etailers will turn out. It's hard to build a business around rock-bottom margins. Just ask the Android folks

I do agree that the stock has run extremely far ahead of the fundamentals, I just can't say if Amazon will actually catch up to its stock.

 

[buhhy]

Actually, assuming Apple to be a zero growth story is actually some optimism. The history of technology hardware is commoditization and low margins. First mover advantage has proven to be nil in the long run. Apple has to prove they can do what no one else has ever been able to do in technology hardware.

Do not get me wrong - Apple is by far my largest holding. I am just trying to explain the market skepticism for their multiple.

The other thing Apple is being punished for is their cash hoard. If they are not going to use it for acquisitions or R&D they should start distributing it back to the shareholders as a dividend. As a result, the street is assigning zero to the cash hoard.

Apple clearly needs to transition their business from a growth model to a value model now. While they may still continue to grow they need only a fraction of their cash hoard to do this so they should initiate a dividend. This will attract a bunch of buyers that right now avoid any non-dividend paying companies. This should push their multiple up a bit. They can easily afford a 2% cash dividend and they should initiate one this year.

I don't think Apple will be dragged down by the Android crowd. Apple is no longer riding its first-mover advantage, its already moved on to depending on its brand name. They have a reputation for being high-class manufacturers, and luxury products don't race towards lower margins. Does BMW try to undercut their Japanese competitors? Not really, because BMW has the reputation of being high quality. If Apple does lower their prices, especially in the mobile department, they will CRUSH all competition. IMO, the only competition left in the tablet segment is Windows 8, which has yet to prove itself.

I agree about the large Apple cash hoard though. They haven't made any significant acquisitions yet, and a dividend would definitely be nice. Do some funds have dividend requirements for stocks?

 

[GOB]

I agree about the large Apple cash hoard though. They haven't made any significant acquisitions yet, and a dividend would definitely be nice. Do some funds have dividend requirements for stocks?

Yes, there are funds that require that their holding pay dividends, and if Apple did so a new class of investors would be opened up. However, I have learned to trust Apple management with whatever they decide, until they give me reason not to. As long as the stock continues to give me unbelievable gains, what do I care if they put in a 2% dividend or not? Nobody knows what Apple may be planning to do with their cash - it could be something massive that puts everyone else even further behind. One thing is for sure - they won't go spending billions on questionable acquisitions, so in my view their cash hoard has a better chance of being spent wisely than that of other companies.

All that being said, I do anticipate a small dividend being announced soon, one that will grow every year.