Global Macro Trading Journal

AMZN net income could be misleading
http://finance.yahoo.com/q/cf?s=AMZN+Cash+Flow&annual

Apparently they have been producing quite a bit of operating cash. Its the 'Changes In Liabilities' that is being a drag on earnings(And operating income), not sure quite what that is

The actual underlying business performance is not bad(Gross margins, revenue minus cost of revenue, is still around 20%)

 

How are you arriving at the 20% figure?

 

Gross profit divided by Revenues

 

Yeah, but you can't spend gross. They're at something under 2% on net... at a 133 multiple. They'd better make cold fusion work, and quickly.

Edit: 1% net.

 

It can give an idea on where the problem is. Gross profit includes the shipping costs(According to 10K), so thats not where the problem is(Which the blogger mentioned)
The company generates more than $3B a year in cash but very little in net income, apparently there are other costs that are creating the problem(Fulfillment, Marketing, Technology & Content, General and Administrative according to 10K)

Seems that they are not raising prices in line with expenses to win market share and possibly later on raise prices(So their profit margin right now is very low). I have no strong view on the company but it doesn't seem like a simple situation by any means

 

You folks still bullish precious metals moreso than not?

I'm starting to openly wonder if gold and silver are near-term shorts. Chart patterns and MAs are pretty bearish, and the various forward-moving scenarios don't look good for PMs:

* If general recovery continues and U.S. markets stay healthy, Fed remains withdrawn, arguing for firmer $USD and low-to-no inflation global growth.

* If global slowdown meme takes hold, slowdown fears intensify and all risk assets get hurt -- likely including PMs.

Winning scenarios for PMs from here seem to be either

* Global recovery accelerating to frenzied pace, "crack-up boom" style, in which case liquidity can't be withdrawn fast enough by CBs

* Slowdown / crisis fears get serious enough for another nuclear-level liquidity injection

Both of those last two scenarios seem highly implausible, at least for next few quarters. Add heavy retail participation in gold as inflation hedge story and maybe PMs are dogmeat here.

 

The perception seems to be that they'll revisit the 5% and justify some of this multiple and cause contraction, but I don't see how they can improve on efficiency. I assume most of the marketing is related to their branded-hardware which should decline with time.

 

I think the Kindle Fire gives clues on their strategy. Selling bellow cost to win space in the market. I'm reading a business book that gives a summary of what is taught in US MBA programs(Steven Silbiger is the author). In the strategy chapter they talk about how being larger helps the company to have less costs than everybody else, enabling them to beat out the competition over the long-run. It looks like what Bezos is doing, win the market share then use the cost advantage to profit more(by raising prices) but STILL have a lower price than the competition

 

Bezos spelled most of this out fairly recently:

There are two ways to build a successful company. One is to work very, very hard to convince customers to pay high margins. The other is to work very, very hard to be able to afford to offer customers low margins. They both work. We’re firmly in the second camp. It’s difficult—you have to eliminate defects and be very efficient. But it’s also a point of view. We’d rather have a very large customer base and low margins than a smaller customer base and higher margins.

http://www.wired.com/magazine/2011/11/ff_bezos/all/1

I don't question Bezos' genius or doubt the likelihood of Amazon's long-term success.

More interesting imho is the question of when that +120x multiple will be cut in half, as 60x (more or less) would still be plenty to price in the founder's "long term vision" potential...

 

Re: AMZN

Just polling the thread if there are views on other high flyers, namely LNKD and CRM. As a group, the high P/Es are a tempting but tentative short, IMO that timing is more essential than fundamentals.

For LNKD, I really don't see how they are going to grow revenues at a pace that would justify a P/E at that lvl. CRM is playing accounting games IMO with non-GAAP, and eventually will get called on it's bluff.