Looks like AWS is their Golden Goose, with 64% of their operating income coming from it. ( The retail side must be operating at very thin margins. )
> For the quarter, AWS sales jumped 45 percent year-over-year, while generating $1.3 billion in operating income, a whopping 64 percent share of Amazon's total operating income.
Which makes me curious about Google's strategy regarding Cloud. Ads are cash cow of Google, particularly for commercial queries. As more and more product searches start on Amazon, this cash cow is threatened.
So them trying to go after Amazon's Cloud business now make even more sense. Only difference is that Google leadership doesn't seem as ruthless as Bezos. Else, they'd have cut margins on their Cloud offerings to near zero in order to undercut Amazon.
That's because Amazon is generally competitive. And they offer premium service. If people thought they would have to for that free "premium service" their growth rate would stall.
After hours means close to nothing. Check again tomorrow.
Operating income decreased 2% to $4.1 billion, compared with operating income of $4.2 billion in 2016.
Net income was $3.0 billion, or $6.15 per diluted share, compared with net income of $2.4 billion, or $4.90 per diluted share, in 2016.
The probably need to get to somewhere around $50B net income to justify their valuation so they've still a way to go. Their revenue probably also needs an x10 factor. So back of the envelope says they need to keep growing at a 30% clip per year over 10 years. That's without taking into account the present value of that.
Makes me wonder what happens in the next downturn - would companies going belly up / trying to cut costs cause real problems for Amazon's business? Trying to cut infra costs is not the easiest thing to do, but I'm sure companies will look at their AWS bill and wonder if they could be saving money by doing something different.
It has been this way for a while. Retail makes a majority of the revenue, which aws generates a majority of the profits. However for the Q I think the retail did beat AWS, but it had way more revenue. However margins on AWS are much better.
How does Amazon structure purchasing between their units? Does the Amazon retail system use pay for AWS at market rate? If so, how much of AWS is runninb Amazon's own systems?
One data point from the slide deck: “[For Prime Day 2016], Amazon retail increased the size of their EC2 fleet, adding capacity that was equal to all of AWS and Amazon.com back in 2009”
I imagine AWS and Amazon are going to be split up. I say this as someone who dearly loves Amazon and who is an AWS SA Pro Cert / my job depends on them.
Antitrust legal theory has grown by leaps and bounds from 20 years ago. Now there are so many theories related to what a monopoly is, even in the absence of a single dominant company, oppressive pricing, etc. When these legal theories migrate from academia to politics is anyone’s guess though (not commenting on if it’s fair also, just noting).
This was 100% going to happen to Microsoft with their Office and Windows division being split up, but then the judge in the case, who was very accomplished and smart, made the mistake of sitting down for several interviews with a journalist about the trial BEFORE THE CASE WAS OVER. Microsoft’s lawyers leaped on this, and were able to save the company.
One consequence though was Bill Gates accelerated departure from CEO into Chairman and the taking over of Steve Ballmer (ugh).
I'm not sure that the MS antitrust cases are a good example to hold up now because it can be pointed out that MS got the crap beaten out of them subsequently (without the need to split them up) because technology moves on and today's monopoly is tomorrow's legacy junk.
You need to adjust those figures for inflation, for starters. And compare to the total performance of an index over the same time range, e.g. the S&P 500 with dividends reinvested.
Well: the proposal was to split the company into a Windows company and an Office company because they were using the Windows monopoly to enforce an Office monopoly, and requiring everyone to use their browser. Guess what? Today there is no Windows monopoly (certainly not with hipsters and their Macbooks), Office continues to dominate _because_ it runs cross-platform, and nobody uses the default Windows browser.
I wonder whether AMZN reaches a point where they crush the competition at all levels and become a glitch in this somewhat functional current capitalist system, marking the start of a monopoly blob system without a name yet. Then I remember, their approach now seems to be all about building internal interfaces and reusing them with the customer in some way (see eg. AWS).
It isn't about destruction, more like symbiosis.
But they may still morph the economy into something different and that change is scary.
That's the story they sell to investors, but real Amazon developers know much of their internal infrastructure is actually using some old systems and not AWS. The whole reusing internal interfaces thing isn't what they're doing at all. Really what Amazon's AWS division is good at is 1) hiring and organizing engineers and 2) selling their services to companies, sometimes very aggressively.
When I worked at an internal Amazon team, we made heavy use of plenty of AWS services: MySQL on RDS, S3, and SQS for example. What we didn't use was EC2 et al. There was an internal equivalent for those.
A number of AWS services are modeled after the Amazon internal versions, but they are built from scratch and generally less rough around the edges. Then internal services migrate to the AWS versions over time. The migrations sometimes happen very slowly because teams are generally not forced to do it.
> However, by the year 2057, as shown on the Buy n Large website, the conglomerate became a worldwide leader in the fields of aerospace, agriculture, construction, consumer goods, corporate grooming, earth transport, electronics, energy, engineering, finance, food services, fusion research, government, hydro-power, infrastructures, media, medical science, mortage loans, pet care, pharmaceuticals, phsycotherapies, ports and harbors, real estate, repairs, retail, robotics, science/health, space, storage, super centers, super grids, travel services, utilities, and watermills. The corporation's control affected other companies as well. It seemed as though other businesses wanted BnL to buy them out, such as Headr Inc. which gave BnL control of the world news headlines.
in 2018 this is starting to sound not so far fetched!
Rockefeller, the Wright Brothers, Henry Ford, Edison, T.J Watson, Sam Walton, Bill Gates etc etc etc were are all on the cusp of ruling the world but then what happened? The story is never simple :)
I'd be curious to know how much people are actually purchasing with Amazon. I have an echo in every room of my house. Yet, beyond the device purchase themselves, I do nothing with them that earns any money for Amazon. Buying stuff is just too cumbersome. I need to see my side by side price comparisons with pictures.
See, I did that one time. And found out that since the last time I ordered that same toilet paper, a much better deal had appeared. Amazon knows that people will buy something on sale and then hopefully continue to reorder it after the sale is over. I doubt that consumers will continue if they continually find out that they are missing out on better deals.
>Sometimes I wonder if I’m just going to be holding my AMZN stock until I retire.
An HN comments section is hardly the place to go into this, but I just can't let a comment like that pass unchecked, so forgive me! But a company's potential growth and the apparent rosiness of their future has nothing to do with whether you should be holding their stock. Those factors are taken into account with the current stock price. You are only justified in having such an attitude towards any individual stock if you are either a financial genius or have some insider information.
That 230 PE ratio, matched against mediocre earnings growth vs the outsized valuation, is more than enough to raise serious concerns about the viability of maintaining such an extreme valuation.
PE has little to nothing to do with Amazon's stock price. They have, as they have shown, complete ability to dictate the size of their earnings based on how much they want to spend on new research and infrastructure.
Amazon could milk its existing assets for a huge return and provide sky high earnings- instead it is doing what it has done to this point, build dominating positions in multiple new markets. Bezos has been brilliant in leveraging his cash generating businesses into growing revenue. There is 0 reason to stop at this juncture to artificially prop up the PE ratio.
> They have, as they have shown, complete ability to dictate the size of their earnings based on how much they want to spend on new research and infrastructure.
I think you are thinking of profit, not earnings. Earnings is revenue - cost of production, which has nothing to do with R&D or infrastructure development.
Earnings == profit. You may be thinking of gross margin.
"Earnings are the amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year."
Meh. Their P/E ratio is roughly 100x the average of the S&P500, which means a growth of 100x in earnings would bring them in line. That is roughly 12 years of their current growth rate, which isn't actually that crazy.
That's set to go up even further tomorrow. Their valuation is so far out of the stratosphere it's no longer tied to any financials. They have a great business with nice artificial barriers to entry to protect them but I can't see how they can grow into their current evaluation. I consider it a speculative stock at this point.
What they have demonstrated, completely uniquely, is their ability to repeatedly enter brand-new markets and completely dominate them. That’s why the market estimates their growth potential somewhere between impressive and infinite.
At this point I’m thinking the same thing. I just wish I had bought way more when I bought in. With their year over year growth I’m starting to wonder again if they aren’t still undervalued.
The fact that they are accelerating growth at $200B in sales is utterly insane. A few more years of this and they will just be able to buy the whole healthcare industry or basically whatever else they want to do. This kind of big growth is effectively unprecedented for a company this massive.
Personally, they got me this holiday season because I originally signed up for Amazon Prime to watch American Gods... then since I had Prime I got free shipping...
And that is the Amazon model in a nutshell right there - they will spend over $6 Billion dollars in 2018 to win you over to their Prime subscription with either free shipping, movies and tv shows, games, audible, dash, twitch, music, or discounts. Once they have you in Prime, the convenience as using Amazon as the source for all your purchases via web, mobile, or voice becomes the norm.
More Americans now have an Amazon Prime subscription than go to church.
In that case they should have a look at the actual products they stock. Here in Canada the prices are infuriating unless it's the actual 1st party Amazon selling the product.
"the National Football League (NFL), Capital One, DigitalGlobe, and Cerner announced they’ve chosen AWS for machine learning and artificial intelligence"
"Machine learning is the focal point for a new NFL initiative called NextGen Stats, which is replacing the NFL’s existing player-tracking system. Powered by cloud provider Amazon Web Services (AWS), NextGen Stats will track all basic stats like touchdowns, interceptions, yards rushing, passing yards, tackles and fumbles, but it will also manufacture a new collection of stats such as real-time location, speed, and acceleration data. The data is analyzed on AWS and used to contextualize movement on the field and displayed as a new experience for fans to see on NFL Media properties, game broadcasts, third-party digital platforms, and in-venue displays. These new stats will also be available to players and coaches."
One man's "burn piles of cash" is another man's "grow market share". There's a lot I don't like about Amazon, but it's hard to say they don't get growth.
I wonder if that's because Alibaba is mostly a marketplace and they sold $25B worth of stuff with a margin of 5-10% on it, meaning they'd only have generated ~1-5B for themselves on that day.
Alibaba has a different business model than Amazon, more similar to eBay actually. Alibaba takes a small cut on sales from third parties who do all the work. That small cut is what gets reported as revenue, despite sales figures of many times that.
Amazon only counts the revenue they make from third party sales in the actual transaction cost (small percentage of sale price). Alibaba counts everything even though they give most back to the vendor. They're very different numbers.
They are the only big company I have seen make money from the trump tax thing. Microsoft, Intel, Apple, etc, all paid a lot more in tax. If I read this right, amazon got money back...
> For the quarter, AWS sales jumped 45 percent year-over-year, while generating $1.3 billion in operating income, a whopping 64 percent share of Amazon's total operating income.
Source: https://www.cnbc.com/2018/02/01/amazon-earnings-q4-2017.html
Closed at 1,390.00 down -60.89 (-4.20%)
After Hours (after earnings announcement): 1,477.99 up +87.99 (6.33%)
Saw the close and thought the bull run was correcting. 2 hours later, it ups another 88$. Wow.