Articles filed under "amazon"
If T-Mobile (TMUS) is half as disruptive to Verizon (VZ) and AT&T (T) in the mobile phone business as recent articles in the New York Times and Bloomberg Businessweek suggest, those larger carriers could be screwed. T-Mobile’s self-promoting CEO John Legere is delighting in introducing consumer-friendly policies that could gain his company considerable market share, or at least force his larger rivals to match his terms to keep their customers.
Remember, however, trashing the other guy’s profits doesn’t assure you of any profits. Sometimes, the price cutter in an industry simply screws it up for everyone, himself included. Ask Jeff Bezos at Amazon (AMZN), a company we refer to at YCharts as the Suicide Bomber of Retail. Yes, Amazon ran Borders out of business and is trashing the results of Barnes & Noble (BKS) and Best Buy (BBY), but the online retailer has little in the way of profits to show for its accomplishments.
Society’s growing insistence on instant gratification has been the saving grace of bricks and mortar retailers this last decade, because even Amazon.com (AMZN) can’t hand over Bluetooth speakers or a warm sweater minutes after you decide to buy it. But with online sellers getting serious about same-day delivery programs, Target (TGT), Wal-Mart Stores (WMT) and other real stores will find themselves fighting to keep even this key advantage. For shareholders in those massive, slow-growth companies, it might be an expensive war.
eBay (EBAY) upped the ante in this battle a couple of weeks ago by announcing plans for same-day delivery in 25 cities by next year. It also announced the acquisition of a U.K. courier company, Shutl, to facilitate the expansion. EBay, along with Amazon and Google (GOOG), already offered same-day delivery on a very limited basis. The roll-out with Shutl, which already delivers in several U.S. cities, ramps up the program quickly. Amazon and Google also are expanding their same-day delivery programs.
eBay’s sole goal in this venture is to raise revenue. Although EBay will charge $5 for the service, CEO John Donahoe explains that delivery itself doesn’t need to make money for the company. He’s happy if it breaks even. Similarly, Amazon CEO Jeff Bezos is unconcerned with the cost of the service. Amazon already spends billions of dollars annually on free and subsidized shipping.
Amazon.com (AMZN) has just signed millions of new subscribers to Amazon Prime, its $79-a-year service that famously offers free, unlimited two-day shipping on Amazon purchases. That growth will surely ratchet up Amazon’s already considerable share of the retail market this Christmas season and onward, possibly beefing up the revenue growth numbers that Amazon investors worship. But whether a lot of new Prime members can appreciably boost profits at Amazon is anyone’s guess.
Consider this data from Amazon’s financial results this earnings season. Amazon collected right at $2 billion in shipping revenues in the three quarters to Sept. 30. That figure includes a portion of the $79 annual fees for Prime, plus fees that non-Prime customers paid to ship stuff. Amazon paid a total of $4.29 billion during the period to ship purchases, Prime and otherwise. Subtract the shipping revenue from the total shipping costs and you get a net shipping cost of $2.29 billion, or 4.7% of sales, a level of spending it has settled into in recent quarters.
If you owned stock in a high-flying growth company, one not yet regularly profitable, and found out that the CEO was selling off hundreds of millions of dollars of stock, would you be upset?
Amazon.com (AMZN) CEO Jeff Bezos sold off 2 million shares in the past 16 months, which is slightly less than half of 1% of the company’s shares outstanding. For Bezos, it meant pocketing $444.38 million and taking down his holdings in Amazon by about 2%. He owns about a 19% stake now.
Half of this selling occurred in the first week of August, according to SEC filings collected at SecForm4.com. The other sales were recorded last year on Aug. 30, Nov. 29 and Nov. 30. All of these were automatic sales; not the kind that should make investors wonder if the insider knows something they don’t. Bezos’ sales were triggered when the shares reached predetermined (higher) prices.
Like a lot of tech people, Wei seems also to want to be a media critic, and he spends some time discussing coverage he feels is wrongheaded. I’m sure much of YCharts’ Amazon coverage would fall into that category if Wei had a look at it.
Wei talks smartly -- though, as he notes, with Amazon’s opaque financial statements, it’s hard to understand, from the outside, how its various businesses are actually performing -- about Founder/CEO Jeff Bezos’s approach. (Investment research tools, sadly, work better when they have specific and relevant hard data to manipulate.) Like all Amazon fans, Wei reminds us that Bezos is playing for the long-term, a designation that seems virtuous to many since American business is so often criticized (justifiably) for being too short-term oriented, particularly publicly-traded companies and the matter of making their projected quarterly results.
My boiling down of Wei: lots of Amazon business is already quite profitable; the profits are being reinvested in newer businesses because Bezos wants to rule the retail world; lazy journalists focus on profits and margins when they ought to pay attention to free cash flow (Bezos likewise likes to talk about cash flow); a company that doesn’t need to be profitable just now ought to really scare the competition (No shit, Eugene. Picking retail stocks alongside Amazon is an exercise is gauging vulnerability and resistance to Amazon's business model.)
Someone between opportunities in your household? Get them on the Amazon (AMZN) hiring site pronto. The online retailer is not only hiring 70,000 seasonal workers for the coming holiday rush – these are jobs within warehouses, known as “fulfillment centers” at Amazon – but it continues a hiring binge of more permanent workers.
Total employment, counting full-time and part-time workers but excluding seasonal and contract workers, hit 109,800 at the end of the third quarter. That’s up about 35% from a year earlier. Sales are rising more modestly – 24% in the third quarter and about 23% for the first nine months of 2013 – so productivity measures, like revenue per employee will continue to take a hit.
Our friends at William Blair & Co. have updated their rankings of retail stocks most vulnerable to the competitive assault of Amazon (AMZN), and in our view you’d be nuts to invest in a retail stock these days without first considering the company’s ability to fend off the giant online merchant.
At YCharts, we’ve dubbed Amazon the Suicide Bomber of Retail because, by slashing prices, it trashes the profits of competitors and also its own bottom line, as we see here in profit margins for Amazon, Best Buy (BBY) and Barnes & Noble (BKS). Much of YCharts’ recent Amazon coverage focuses on these competitive issues.
The Blair analysts, led by Mark Miller, regularly gauge product overlap between Amazon and other retailers (both in their stores and on their Web sites), the competitive pricing on these items, and the shopping experience (in-store or online) that might be compelling enough to make consumers want to buy from retailers even though they can get stuff cheaper at Amazon.
Amazon (AMZN) reports results later this week, with a small-ish loss expected, but the earnings release could very well send the online retailer’s stock climbing again.
In recent years, of course, Amazon stock has been a rocket, despite the company’s lack of profits. Why? Revenue growth in a market in thrall to growth; and a widespread belief that, since Amazon is powerfully reshaping the retail industry, great profits must be coming its way one day soon.
One of the best-informed Amazon bulls around, analyst Mark Miller at William Blair & Co. in Chicago, believes the stock, while still trading in part on revenue growth, now also trades on gross profit margin, or the difference between sales and the cost of the stuff sold.
In the relatively short life of YCharts, we have written more than three dozen articles on Amazon (AMZN) – not because we’re fans of the stock but because it poses a unique problem for value investors:
Amazon’s stock trades at such a crazy valuation that owning it requires a leap of faith many value investors aren’t willing to make. At the same time, Amazon’s brutal competitive behavior has transformed retailing, and buying any other retail stock without first gauging its vulnerability to Amazon would be a foolish move.
Shorting Amazon, of course, would probably be nuttier than buying it, as investors enamored of its disruptive (ands destructive) business model have piled into the stock, even as the company’s operations have failed to produce regular profits. For this reason we’ve nicknamed Amazon the Suicide Bomber of Retail, a company that ruins the business of competitors while also trashing its own bottom line.
Warehouses aren’t storefronts, but it’s all fixed costs in the end. And while Amazon (AMZN) may connect with you via the Internet, it is increasingly a physical-asset-intensive business, building warehouses in urban areas so it can deliver items the day they’re ordered and building a lavish Seattle headquarters to house much of its growing employee population.
We’ve long questioned the sky-high valuation Amazon shares receive, given its lack of profits and the fact that it produces revenue growth via price-cutting more than anything. And as Bloomberg Businessweek reports, supporting that revenue growth requires a huge and rapidly-expanding asset base.
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