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The Two (+1) Charts That Matter From Amazon's Earnings Release
Amazon's business model is quite fascinating: it is a retailers' retailer, and an online micropayment-based bookstore. That's it. Yet, as is well known, the key problem with retailers is margins. So take a retailer squared and the margin becomes a problemsquared. And the one problem with online bookstores is that they compete dollar for dollar with Apple's ap store, so one must constantly spend for "innovation", if not actually innovate. Which explains the only two truly relevant charts from the AMZN earnings release: their operating income profit, and their R&D spend. One, to confirm that you can remove the retailer from the retailer, but you can never remove the margins; and the no matter how hard you try, you will always have to compete with Apple, and spend accordingly. And we throw in one bonus chart for good measure.
EBIT margin:
R&D Spending:
And lest someone confuses that R&D spending implies efficiency, sorry to disappoint:
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I see layoffs bitchez
I see CEO layoff
CEOs have contract, employees have bus passes.
The 3 graphs are out of control exponential functions. Mathematically this requires immediate 50% layoffs, spending cuts and licking wounds.
I think they are going to come around and do some great things, different from retail. WalMart is 1/2% margins, Amazon should be no different, shipping costs are the same type of cost from brick and mortar stores. Jeff Bezos has the balls to invest and take risks for the future to build new and additional revenue sources, and leverage verticalization. Amazon web services, the new Kindle Fire, the Prime Media for music and media, and some of their other tools put them 100% into Apple's market, and the cloud market. Amazon can host the apps, and the Fire will be a tool for direct suscription revenue for a ITunes media store. That's why R&D is up so much, and that's a good thing. Retail will get squeezed, but the Cloud, and other options, do generate great money for them, and they learned the cloud from hosting the retail. Unlike most companies right now, Amazon has options, profit options, and they have the balls to think longterm. CEO's have become whores to hedge funds, and stock prices, and can't run long term visions without gettin punished. Result - ineffective CEO's. Just ask HP how that's working out for them.......
They are hiring like crazy.
I will still buy from them...
They are still a good company, I hope their stock price tanks so I can buy it at a reasonable level.
why not buy from them when they are making almost 0% in operating income :-)
They've agreed to start collecting sales tax in CA in 2012. Watch their revenue. Avoiding sales tax was a huge factor in shopping with them. I'll be going on a spending binge in the 4Q, and then it's over--I've already canceled Prime.
But...but...but...They've added online video streaming!...And Netflix has been so successful with their streaming service...right?
Did they have a large increase in employment and why?
Margin squeeze.
for what its worth, since my book was pu on Itunesl it's been selling well Vs near nil when on Amazon.
Seems to me, Apple's book platform is superior for anyone with a book they want to sell.
The best book platform is a text file (.txt)
...composed on Vi.
I love gedit. But i hate it when selinux screws it up. Luckily I found nano.
Vi is just stupid.
:wq
Nano? OMG. Do you know what just happened to your paleo-geek score? Not good.
Sorry you didn't press insert before scoring me. You are in the wrong context.
Contextual editors are just stupid.
I just bought a Kindle ...probably 1 book a month and thats about it. How much per book ??? bout a buck I'm guessing - don't know
More like $12. I got one as a gift last Christmas. At first I was like "Fuck this thing, why would I pay $12 for a text file?" but the convenience of immediate access makes it worthwhile sometimes. There are also lots of, um, not-supposed-to-be-free books that have been formatted to be kindle-friendly by some kindly folks.
My margins look the same, anyone running a business knows what this looks like. Still doing okay, as people still want to eat, but I won't be hiring unless the government will let me pay new employees at lower rates. Yawn, boring world indeed.
You used the wrong avatar...
Chat 1 not surprising, Chart 2 somewhat surprising as it suggests effort to increase productivity, Chart 3 sure there will be lay offs at the same time the holiday season will see anothe increase in onlin shopping.
Probaly wrong, what do i know
FTB
Just so, Tyler. Amazon is all things to all people, kind of like Voltaire's Doctor of Things in General.
No worries. As long as there is dwarf tossing, Jeff Bezos can find gainful employment.
I see prices going up in pretty short order.....
I see prices going up in pretty short order.....
OT but important ... Approval of US Congress now in single digits -- 9%. That means there are still 27 Million dumb shits still out there. Education is the key.
No, it's worse than that. The 9% disapproval reflects the morons who answered: "Duh, no?" For every one of them, there's another moron who answered: "Duh, yes?" Like flipping a coin.
Doubled FTE's from 25k to over 50K in less then two years. Yikes! There are a lot of inefficiencies when you bring that many people in that fast. You basically lose control of productivity and quality. The managers are too busy trying to get the next person hired and trained.
Nonethelss, it recovered from yesterday AH 184 to 206 in less than 24 hours.
Hard-copy books are mostly obsolete. I understand the need to save great works in a SHTF scenario, but that's really the only reason to have them. However, "electronic" books are just a joke. A fad that will pass. Gone are the days when big publishers could dominate the discussion.
They tried to give you books ... but you just ate the covers off them.
However, "electronic" books are just a joke. A fad that will pass. Gone are the days when big publishers could dominate the discussion.
really? we'll all only watch TV, movies, and listen to music? We'll only read blogs?
it is true that big publishers will lose big on e-books... but I doubt they are a fad that will pass, unless you think we'll all just reduce everything to a twat from Twatter?
Why do I want to pay for something that can be found free somewhere on the net? A couple of weeks ago I finally bought "The Black Swan" and read a few chapters and it was kind of boring. I realized I had already read the stuff at various places on the net over the years.
Why do I want to pay for something that can probably be found free somewhere on the net?
1) to avoid computer viruses
2) because buying a book on Amazon/Barnes and Noble is much easier than searching through the intertoobs
but mainly:
3) for the same reason why people buy music on iTunes.
They are investing in their Cloud services big time. And have become somewhat successful there. Afterall it is becoming apparent that bigtime data centers will be needed... a lot.
So, I see as Amazon actually investing in themselves and the future.
With their margins, they'll have to be the last retailer on the planet to do enough volume to be profitable.
amazon is a good company but damn their stock price is way too high, rough earnings too
You forgot Oracle whore. Illuminati's loves them some huge ass fucked up horrible databases.
And the one problem with online bookstores is that they compete dollar for dollar with Apple's ap store, so one must constantly spend for "innovation", if not actually innovate.
I guess I"m the only person, but I have a problem with this statement. Amazon DID innovate. Apple is not the only innovator on Earth you know.
Amazon basically created the e-ink e-reader market. They and Barnes and Noble to my knowledge have a fairly big chunk of that pie. Although their newest creations are iPad-like, the others are not.
I have a Nook, and it is my favorite piece of technology ever. It is so much better for reading than an iPad or anything Apple has. (try taking an iPad outside to read). Up through last year, I maybe bought one book per 5 years. I now routinely buy 3-4 books per month. I know Kindle owners feel similarly.
anyway... don't kid yourself, Amazon is an innovator, and their market may overlap with Apple, but it is also distinct from Apple. Apple is a trendy high cost music/movie enfotainment sort of comopany. Amazon is a more vanilla retailer, with a bookstore, and emerging low cost enfotainment options
I wouldn't be surprised if many many people buy an Amazon Fire. at $199, why not? this will of course pressure Apple. They also have to my knowledge (although I could be way off base) a larger chunk of the cloud... although iCloud will likely come strong.
anyway... Amazon is showing exactly what one would expect in a slowing economy... slowing results. I highly doubt Apple will be immune.
Sign O'the Times. Operational profits keep on being squeezed.
I like Amazon...reliable.,.....they still monitor their sellers....not like Ebay which can be a real problem.
I remember being short Amazon in 2003 at around 9, only to see it rise to 13. I then covered. I still think if you apply a normal retailer's valuation you will come up with a single digit midget valuation. Though this did teach me a lesson about being short popular stocks.
Sell some calls to make a buck, then wait for the next risk-off and buy stock. Not investment advice.
Wow. So it's official now? Hiring employees is bad?
If they're not in China.
Yes, if they could only figure out a way to make us take delivery of our Amazon orders in China, then they would have it made.
it is still a strong company.
Don't really buy online much, but I did look on Amazon the other day and found I could buy a laptop DC jack for $4, only to have the shipping cost for something the size of a marble somehow cost $10.
Radio Shack it is, then.
How mega ripoff Apple is still finding morons to buy their overpriced products is amazing. They have done a great job at "innovating" a mythos.
Apple is like the EU, they haven't had to pay for their defense (since virus and malware developers historcally avoided their OS) and ride the prosperity and handout train. Once they become THE target, they will come back to earth with everyone else.
They'll never be "The" virus target -- they're smart enough to not want that.
/I hate Apple
/Former long time Apple customer
/Still the best computer for my elderly parents
You pay more for Apple products and give up a few features, but you get a product that works for a long time. I switched to Mac's a few years ago after getting 3 nasty viruses in 3 years using 3 different anti virus programs, I also got tired of having my computer lock up and other glitches, the Mac just works flawlessly, no viruses, no anti virus protection, no lock ups, easy to use, makes life so much less complicated. That's worth a little more IMHO.
Works for a long time??? They make a new version of the iphone every year and you can't even change the battery yourself!
While interesting, the R&D chart would be more useful shown as a % of revenues.
I did this exercise going back to 2006, and R&D is lumpy and appears to exhibit some seasonality - they tend to dial it back in Q4 every year. Typically R&D spend ranges from 4-6% of sales, although this last quarter it was over 7%. The general trend is roughly flat R&D as a % of sales although we will see if the last quarter is repeated.
On a rolling 4 quarter basis however, the seasonality is smoothed out and there is a major ramp in R&D starting in Q1 of 2010 from 5% to 7% of sales. This coincides very closely with the compression in operating margin and would seem to explain about half of the decline (2% increase in R&D compared to 4% decline in operating margin). I would surmise the other half comes from lowering prices to take/protect market share.
I shop a lot on Amazon, but recently have noted that their prices are [sometimes] somewhat higher than what I would pay other well established outfits like Crutchfield.
Made me wonder if Amazon is milking their customer base a bit.
Agree, AMZN is a viable company but with a PE of 15 the stock is a little overvalued. I have a 35 dollar price target as long as they show a profit. If a loss occurs, my analysis is flawed.
Apple is a one trick pony and the pony, Jobs, just died.
Scully found this out.
Amazon is like the stock market, full of deceit and over estimations, but I use them when the price is right.