AMAZON LOSES $126 MILLION & STOCK IS AT $320

11 comments

Posted on 25th July 2014 by Administrator in Economy |Politics |Social Issues

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Amazon lost $7 million in this quarter last year. Their master plan resulted in a loss of $126 million this year. Do you notice how hard it is to make money when your business model is dependent upon selling products at a loss? Maybe their drone delivery service will turn the tide. Oh yeah. That 60 Minutes puff piece was nothing but bullshit. The FAA will never allow it. Their loss was only 80% higher than the Wall Street shysters anticipated. I’m sure they’ll make it up on volume.

The stock is down from its high of $400 earlier this year. Of course there is no Fed induced stock market bubble. Companies that lose money year after year after year certainly should be trading north of $300 per share based on a storyline. PE ratios and price to book values and free cash flow are for old fogies. This is the internet age when profits aren’t required. Take advantage of  today’s 10% drop and buy Amazon on the cheap. It’s a can’t miss opportunity. Just ask Denninger.

 

First, revenues are rising as reported but expenses are going up even faster.  Notable places where expenses are exceeding revenue growth rates include:

Stock-based compensation up 31% (!) y/o/y

PPE purchases are up 50% (yikes!) compared against same-quarter last year, and capital lease additions doubled.

Shipping expenses are up 30%.

Marketing is up 40%.

Tech and content is up 40%.

In short — sweet Jesus, these guys are burning money like it’s newspaper in the fireplace!

The only good news is that the cost of goods sold is up 20%, but revenue was up a bit more, so they’re driving cost.  Of course that’s bad for their vendors; they’re getting squeezed.

Now here’s the kinda-ugly on the sales side.

International is slowing — it’s up 18% on sales while domestic is up 26%.  But, remember, we were told international was going to save the day!  Uh, that’s the same change y/o/y from last quarter — no improvement in either domestic or international.

If you remember my previous reporting one of the places I watched very, very carefully was media.  The reason is this — media is a high-margin business, electronics and general merchandise is a very low margin business.

So how’s that working out?

Well, domestically media is growing 13%, while merchandise was up 29%.  Internationally it’s much worse; media is only up 7%, and those are y/o/y comparisons on the quarter.

The bad news is that media decreased both domestically and internationally on the quarter!  In fact, it was down 13% domestically and 10% internationally.  OUCH.

The electronics business was also down internationally by 5%.  What made up for it was a 7% increate in (zero or even negative margin!) electronics and merchandise sales in North America.

This is crap performance, in short; media sales, which is where the margin is, in fact contracted on the quarter both in North America and internationally, and general merchandise was down sequentially internationally as well!  Of goods sold only merchandise in North America advanced on a quarterly basis.

It’s worse when you remove the effect of exchange rates (which helped internationally.)

Operating margin has gone in the toilet as well and is in fact negative — no surprise given the monster cost ramps compared against revenue.

Amazon is a huge firm that despite all the claims they would turn the corner, smash their competition and make an unbelievable amount of money they have failed to deliver on that promise for more than 10 years serially.  Costs continue to rise in several areas at rates exceeding sales and there is no margin improvement in sight.  In addition their AWS services, which they have touted as one of their saving graces, has become embroiled in a price war and they’re spending on PPE (probably for that service although I’m sure distribution is part of it) like a drunken sailor while having to continually slash pricing to obtain customers.

We’ve heard for years that Amazon was “investing” and that investment would reap rewards.  I see no improvements on an annualized basis in terms of growth rates against 2013, the company has its strongest unit growth in sales in areas where they make little, nothing or actually lose money when fulfillment costs are included and worse, their “cloud” service has become embroiled in a commodity style “race to zero” pricing paradigm and yet they’re still committing to spend like crazy on it.

I know what we’ll do!  We’ll lose money on every sale but make it up on volume!

This is a company with no justification for a stock price anywhere near where it sits, even given the well-justified implosion after hours.  If there was any reason to believe they could stem the price:cost problem with AWS that is spiraling out of control and stop fulfillment and marketing expense from rising faster than revenues there might be an argument for the stock to sell around $100, which would give it a forward P/E of about 30.

Unfortunately as it stands, given what is now a multi-year series of false dawns and promises that are never fulfilled to actually find a return on all this cash plowed back into the business, along with the apparent detonation of their cloud service cost:price structure due to massive slashing of prices (which one can presume is necessary to attract and retain customers) the stock is not worth $30/share.

Good luck if you’re long.

11 Comments
  1. AWD says:

    Amazon is a disaster, but the best place to shop

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    Are We Addicted to Failure?

    Submitted by Charles Hugh Smith from Of Two Minds

    Are We Addicted to Failure?

    Like all addicts, Central Planners are confident they can manage the monkey on their back. But this is a self-serving illusion.

    Addiction is many things, but beneath its complexities it is a self-destructive expression of the desire to avoid or suppress pain. The pain might be physical or the stuff of the mind, memories or inner demons or tortured misgivings about one’s choices, soul and life.

    Though the self-destructive aspects of the addiction are painfully visible to observers, to the addict they represent a solution: perhaps not the ideal one or even a good one, but a solution nonetheless.

    Fear plays a big part in many addictions–fear of life without the addictive salve. The fear in an addict’s eyes when the fix is not forthcoming is haunting to all who witness it.

    To the non-addicted observer, addictions are not successes; they are failures of one kind or another, and those who care about the addict seek some way to extract the addict from the grip of his/her addiction, and from the fear that often drives it.

    I have recently been wondering if America is addicted to failure. The oft-repeated definition of insanity is doing the same thing over and over again and expecting different results, generally attributed to Albert Einstein.

    The source of this addiction is a fear of life without credit/asset bubbles. Fearing life without the rush and high of asset bubbles, we see an addiction to financial bubbles as a solution in the same terrible way a heroin addict sees smack as a solution: not as a long-term solution or even a good one, but a solution nonetheless, because it makes the pain of facing life without Central Planning financial bubbles go away at least temporarily.

    But bubbles inevitably leads to overdose and a subsequent self-destructive crash. Our central bankers/planners have injected enough monetary heroin into the nation to guarantee not just the rush and the high but the overdose that leads to a destructive crash.

    Like all addicts, Central Planners are confident they can manage the monkey on their back. But this is a self-serving illusion; it’s the monkey who controls the addict, not the other way round.

    25th July 2014 at 1:21 pm

  2. Peaceout says:

    I would hold off on buying the dip a crater sized dip is yet to come!

    25th July 2014 at 2:16 pm

  3. overthecliff says:

    It is coming all right but not yet. We have to see lower highs and lower lows first.

    25th July 2014 at 9:05 pm

  4. Hollow man says:

    How about this. Does it sound right? The world ridding itself of dollar trade is starting to show this way. The dollars coming home are helping bolster the market. It climbs as the big bankers invest the dollar while trying to figure a way out of this mess. Once the precious metals start to increas in price that may signifie the end is around the corner cause they know they have played all their cards.

    25th July 2014 at 9:13 pm

  5. N8 says:

    I work for a shipping company that mainly services ND SD MN. We are an agent for a freight forwarder that has a major contact and business with Amazon. Amazon’s polices are so stupid when it comes shipping. Obviously a lot of points are very very rural in these states outside of the twin cities in MN. When Amazon wants to pay us 400 dollars or even 700 dollars I’ve seen in many cases to do a “white glove” delivery I’ve always wondered and just shook my head. They send a two man team to deliver your 60 inch (or larger in many cases) out to podunk middle of no where dakotas. They want us to send a two man team to unpack it from the box and remove the trash and basically plug it in and say its working. Great in a major metro area but even then it’s going to be at least 150 dollars at the very very least at the final end of the delivery. Thanks Jim for posting and it answers my question ha

    So really if you are buying a 1000 dollar TV out in the middle of no where ND or SD and Amazon is going to pay the final delivery agent 700 dollars who MUST do the white glove delivery with all the services no matter what I don’t think I have to tell the rest of the story. The numbers almost never add up. If they are paying more in JUST SHIPPING ALONE how the hell are they going to make money. Great for trying to undercut the competition by having lower prices to make money but your business is NOT going to work ever in the long run if you don’t make a profit on your sales or even break even! 2 – 4 = does not equal a + number – 1st grade math Amazon…

    The funny thing about this is we have tried to save them money in cases wondering if the customer is ok with us just bringing it to the door with a delivery driver and a liftgate on large TVs nope you must send two men (which is a major astronomical cost in many rural points). This is the nut shell version but I’m constantly thinking how much money are they losing.

    25th July 2014 at 11:06 pm

  6. Stucky says:

    How does ANY company make money these days?

    What I mean is, a smart person will NEVER buy anything at regular price. I know that I ONLY wait for super-sales.

    For example, in about 10 minutes (9:30AM), we are going to Bloomingdales to purchase cookware. It seems like we’re on a spending spree lately. However, Ms Freud’s pots and pans are over 20 years old … and NASTY. It’s BEEN time for change years ago,

    So, we’re going to get Anolon Infused-Copper Cookware — 11 piece set — regular price, about $750 (as per the Anolon web site) — for $239.

    Also going to buy some individual pieces. For example, an All-Clad stainless steel 12″ covered frying pan — was $205 …. today only, $119.

    And we do this for pretty much EVERYTHING. If it ain’t 50% off, we ain’t buying.

    Gotta go ……..

    26th July 2014 at 9:37 am

  7. Stucky says:

    Just got back from my first ever shopping experience in Bloomingdales.

    The first thing one notices immediately is, “Holy shit. There’s some real QUALITY items here”.

    The Customer Service is simply OUTSTANDING. Never seen anything like it, not even at Nordstrom’s. The young lady who helped us knew everything about every cookware brand they offered … the pros, the cons, even how they were made, and which ones were the best value. Friendly, cheerful, and never did we feel “rushed” even though we spent over an hour with her. It was just an amazing experience. We used to do most of our kitchen shopping at Bed Bath & Beyond. We’ll be going to Bloomingdale’s from now on …. when they have sales.

    We bought an AMAZING kitchen gadget for $15. It’s a “citrus sprayer” by Lekue. You twist this gadget thingy into a lemon or lime …. it has a spray nozzle you press ….. and out comes a SPRAY OF LEMON!! Just tried it …. IT IS SOOOOO COOL!

    Looks like this
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    FRESH LEMON SPRAY!!!!!!!!!!
    a2d.3400115SURU500.jpg

    26th July 2014 at 1:21 pm

  8. AWD says:

    Stuck, your an inspiration to us all.

    26th July 2014 at 1:23 pm

  9. Stucky says:

    OK, OK …. I am really GEEKED about this!!

    Check it out!!

    26th July 2014 at 1:24 pm

  10. AWD says:

    Now you can spray lemon or lime juice on your schwantz…..all the better for a hummer….

    26th July 2014 at 1:27 pm

  11. Eddie says:

    Amazon has got to be the bubble of all bubbles. When it goes, life WILL change, especially for younger people who shop that way exclusively.

    Wonder what John Hussman has to say about their P/E ratio.

    26th July 2014 at 2:18 pm

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