The logic of shorting AMZN (as good as any)

Discussion in 'Stocks' started by atticus, Oct 6, 2011.

  1. I bought the following DAC from Amazon (third party but shipped by Amazon):

    I paid for next-day and the tracking email stated it was shipped via a "3PL" logistics company called, "Ensenda" instead of the more conventional UPS or FedEx. I always get UPS. FedEx or DHL to Nevada as they have a local warehouse in Reno.

    I wait for the package the entire day, even leaving a note on the door stating to ring the doorbell before leaving the package with "$10 tip for driver" clearly printed on the note.

    Home all day... no delivery. Call Ensenda with my tracking number and told that driver attempted. My home office window overlooks the driveway and I didn't see a single car enter the driveway. I was told they will attempt the following day.

    Day 2 and same story. Attempted delivery but nobody home to accept/sign. Call Ensenda and get the same bullshit and then chat with Amazon Bangalore tier1 CS. Told to wait 10 fcuking days before calling for a replacement. Yup, 10 days. Not taking that as final I call Amazon call center and talk to Adrienne who states she will ship a replacement the same day, free overnight. I cautiously request that someone other than Ensenda provide logistics and am assured it will not be Ensenda.

    To my horror I find that Ensenda is the carrier on the tracking page. I call AMZN again and actually get Adrienne on the first ring. Amazing coincidence. Adrienne is dumbfounded that AMZN would allow a $1,000 item to ship via a "3PL".

    I tell Adrienne to please cancel the order and credit the card. She politely requests that the DAC be returned at AMZN's expense should it ever arrive.

    Now, is Amazon suffering margin compression to such an extent that they're resorting to using dudes in '73 pickup trucks to deliver merchandise?

    Sell the Jan 210 straddle on any print over 232.
  2. Due Buy

    Due Buy

    Scary. I use Amazon quite a bit, I'd hate to see any type of decline. Just to confirm, you personally were the one who had this experience?

    Also, I didn't find the part where you mentioned how you knew it was a '73 pickup truck delivering your item, how'd you find this out?
  3. atticus! was hoping for some options analysis, did not expect a stock777 style explanation :p

    The item you linked will cost the seller 10% (~$100) to be sold by amazon, seller also has to pay for monthly storage cost. Amazon bulk shipping rate should be around $10 for this 7lb item. So they are making very good profit with zero inventory/price risk. So i really dont think they are suffering margin compression especially in this case, amazon is just the middleman..the broker if you will.

    Personally, pretty much everything i order online i buy it through amazon (if they have it) even if it cost more. Always top notch service - order and forget, never have to worry about delivery delays, fake in stock status, or problem returning if the product is bad. It's very rare to find this level of service in a large company. It's one of the few companies i admire. I also sell on both ebay and amazon, there is no comparison the level of service/treatment you get.

    They also got their hands in so many cookie jars, their entire web/server farm initially used to host is now a cash cow and a major player in the webhosting market, not to mention all the web/video stuff getting rolled out.

    And the kindle fire will be epic, not because it's revolutionary but because it's $300 less than any other comparable tablet, which is insane. It's the first tablet that seriously compete with ipad2.

    Anyway you are not really shorting amzn!
  4. nitrene


    Karl Denninger of The Market Ticker has a pretty good argument for the collapse of both Apple & Amazon. The main point I think he makes is that Amazon will eventually get crushed by margin compression & that Apple won't be able to maintain their massive margins they currently enjoy:

    Apple's stock price (AAPL) is going to collapse, and Amazon may in fact go bankrupt.

    There, I said it.

    Yes, I know the counter-argument, especially for Apple. The company has a boatload of cash and trades at a 16 current P/E. These are not, by traditional measures, "ridiculously overvalued" numbers (such as Netflix had berfore it blew up.)

    Amazon will also blow up; it shares Netflix's former screwball P/E (currently 101.)

    And when both go, and they will, the Nasdaq will collapse since these two stocks are an outrageously disproportionate piece of the index.

    Why do I put this forward?

    Let's deal with Amazon first, since it's the simpler case. Amazon's primary "lever" is the ability to play around the edge of the sales tax system. This gives it an instant 6% (on average) price advantage over everyone else, more than enough to offset the shipping costs (which you pay in any event; whether shipped directly to you or to a retail store, you still pay for it in the product price somehow.)

    But that sales tax loophole is going to close. Over the next few years states will find a way, as the revenue shaft is getting out of hand for them.

    Now here's the problem: Amazon has a 2.58% (ttm) profit margin and a 3.14% operating margin. This is less than the benefit they get from evading the state sales tax system.

    In short, this is a firm that only exists because of its ability to evade that tax structure. When, not if, that ends the company is a literal zero.

    H also has a follow up post on Amazon:

    My article yesterday on Amazon and Apple drew an actual response from Amazon corporate communications. His complaint was that he had a study (from a sell-side analyst, of course) that claimed they were cheaper than everyone else even accounting for sales tax. The obvious question left on the table is whether there were competitive threats to Amazon's business model, which was the gist of my article - I believe there are, they're real, and the firm's razor-thin margins and zero dividend leave it with no room for mistakes - any error in execution is likely to result in an earnings miss that takes half off the stock price almost immediately (and it may not stop there), exactly as happened with Netflix (and a whole host of other firms through the first Internet bubble and now we're seeing it again in the second.)

    We went back and forth a couple of times, but I made clear that I was unlikely to change my opinion, and in the end, I didn't. Look, Safeway has an operating margin about the same as Amazon's, and sells for 11 times earnings. At 11x earnings I'd buy Amazon stock. At 15x I might, allowing for growth. At 100x? Uh, no.

    Anyway, the reason I'm following up with another Ticker is that CNBC just had a segment up (no link yet, sorry) where the premise on buying Amazon's stock was, and I quote, "you're buying the next 10 or 20 years"

    Oh REALLY?

    Amazon's 5-year compounded analyst estimated EPS growth is a stunning 27.67% as of today.
  5. It was.

    A neighbor had a similar experience with Amazon/Ensenda and his order was delivered days late by a guy in a 70s-era pickup truck with Amazon packages overflowing from the truck-bed.

    FWIW, the DAC arrived yesterday via parcel post with a shipping date of the day before it arrived. Ensenda sat on the package a week before finally shipping locally via USPS.