They note in the release that Whole Foods accounted for $1.3 billion in sales. Excluding Whole Foods sales and favorable exchange rates, growth was 29%.
Haven’t followed the numbers closely, so pretty shocked that WF is only pulling in $1.3B/quarter. That means the average American household is spending $3-4/month there.
International was actually a drag (29% compared to North America 35% and AWS 42%) Edit: but I guess I should exclude Whole Foods and in that case North America growth is 28%.
> Excluding Whole Foods Market and the $124 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 29% compared with third quarter 2016.
Still a really impressive 29% without taking WF into account.
Anecdotally, I've started using Amazon FBA for things that I used to use eBay for.
Say I want a 2.2" ILI9341-driven TFT screen. That's not exactly something that you need everyday, so I could go to AliExpress/Taobao and get N for $3 ea in ~3 weeks, or eBay to get one for $4-5 in a lottery of anywhere from 3 days to 2 months. But now, I can get one from Amazon for $10 tomorrow.
It has prime shipping, which means you gotta figure they use the whole 'Fulfilled By Amazon' thing; I think that's like $3 a pop for small items. Heck, I was thinking of trying to make some money off of that kind of arbitrage, but it wouldn't be stable income since it's so dependent on a single 3rd-party company. Also, you'd literally be profiting off of China's sweatshop factories and lack of compunction around IP, which I feel sort of 'eh' about. At least using the things, you can argue there might be an end to justify the mildly shady means.
And it's just as likely to work as one from those other sources. If I wanted ethically-sourced reliable hardware I'd pay like $40 to get one with fast shipping from Adafruit. I really appreciate all that they do, but I also can't afford to ignore price for every purchasing decision that I make - and I am definitely not alone there, so there's probably still a lot of benefit to being "the everything store."
Interesting--I've found myself switching the other way recently. I used to do a lot of purchasing on Amazon, but have moved more and more over to eBay. Prices tend to be better there, even on new items. No sales tax. Most sellers now offer free shipping, and you don't have to fill your cart to $50 or whatever it is to get it, and that free shipping isn't the "carried on the back of a mule" speed like Amazon's.
Me too. I still buy a fair bit from Amazon, but a lot of my purchasing has moved to Ebay and Aliexpress.
It used to be the case that Amazon was very rarely significantly undersold. Starting ~3 years ago, I started to find that Amazon was somewhat frequently undersold by enough that I was willing to wait for Ebay or Ali (or camelcamelcamel to email me an Amazon price drop).
I think Amazon's current positioning is more profitable for them and makes me happy as an investor in AMZN, but as a consumer, it makes me Google shop more often than before.
I can definitely see that; if you didn't have prime shipping, and more importantly imo, didn't live in a huge city where tons of items are deliverable to a plethora of nearby 'lockers' with 24-48-hour delivery. That probably has a lot to do with it, along with my experience that ebay is still pretty 'back of the mule' with shipping electronics internationally. Sometimes it's fast, but usually I forget I ordered something before it arrives.
But I do also order larger quantities of things from China, when I can plan ahead. I go to Amazon when I can't plan ahead, and more frequently these days, to get a working reference implementation up and running before I start running around making a BOM for a prototype. It's amazing how much time and money that can save you.
This is an unconvincing statement. Amazon is known for reinvesting all their revenue back into the company. That’s why their stock price was low for so long.
Aren't very high sales for a store expected? They don't manufacture (most) stuff - they buy it for X, sell it for X+Y%, so better economy = more consumer spending = higher sales for stores. The real key for Amazon is how good their profit margins are on these sales.
I don't think its the economy being that much better; rather, we're seeing the fruits of mass adoption of e-commerce for everything.
Especially in the HN crowd, its easy to forget that e-commerce is still <9% of global retail. And while that number won't go to 100%, its expected to double in the next four years.
So given that number alone, we should expect a ~20% YoY increase in revenue from Amazon. 34% is still excellent, but makes a little bit more sense when you frame it in terms of overall sector growth.
Question is whether those companies will culturally be able to compete in a low-margin space. I don't know anything about Microsoft but wrt Google I've often thought that the insane margins on the search ads business have made it institutionally difficult for the company to take any low-margin business seriously. Amazon on the other hand has been all about razor thin margins since day one.
I don't know... on Microsoft's earnings call today, a couple of finance suits specifically asked them about how they intend to grow cloud margins, so I don't think this is incoming. Amazon/Microsoft/Google tried a brief cloud price war a few years back and it all led to them being right back where they started, so I wonder if there's a MAD-ish incentive not to do that again.
Out of all the big ones Amazon is the one I'd want the least to make much money. They just seem to have the least human view of their customers, with some products they've built completely centered around viewing their customers as consumer-machines.
Yes, _one_ device, and with the rather long support of their devices, you definitely don't have to buy it yearly (I get your point, tough).
Every product Amazon presents, is in a very obvious way geared towards making people consume more every day as if that were the biggest joy people have in their life. Ordering from Amazon via image recognition was one of the only unique features, the Fire Phone had. Why would I as a person deciding between smartphones want that? Alexa was presented in the same way, and then there obviously is the Dash button.
I find it interesting that you consider Amazon to have the least human view of customers when they are founded and based on the principle of customer obsession.
Correct me if I'm wrong, but isn't that just due to their accounting preferences?
Amazon has had the capability of making profit for years, but prefers to expense everything off in an effort to grow rather than pay increased taxes.
Their skyrocketing market cap hasn't been due to a change in the company's direction so much as investors gradually realizing this strategy and the raw growth potential of where Amazon has positioned itself.
I think the parent means, they prefer to aggressively spend their cash flow on growth rather than produce a nice taxable income figure. It's an odd way to phrase it, one wouldn't use "expense everything off" in that way normally.
The sibling comment regarding avoiding a taxable income is correct.
When a company makes a profit, it pays taxes on that income. The dividends are then either 1. distributed proportionally to the shareholders, or 2. reinvested into the company.
The general idea is that reinvestment will generate more profit in the long term. In this case, the company reinvests the income into operations and growth during the next fiscal period and onwards. This method of reinvestment, however, still requires some taxes to be paid on the income.
As an alternative, a company can fill their income statement each quarter with expenses that will ~match their income. This way, they're essentially reinvesting in their operations and growth just the same, however they don't have to pay the taxes if the expenses are generated in the same quarter. This method makes the company look unprofitable, but in reality is merely an accounting choice (and arguably, a good one).
Good luck getting the IRS to accept that "good" accounting choice. In fact the reported statements can be different from those used to calculate the actual taxes paid. But even if the SEC is more flexible, there are still limits on what can be done. They are still reporting capex much higher than net income, if they expensed everything off they would be reporting billions in losses every quarter.
You're right that Amazon has higher capex than income, however this has been intentional; I haven't been in finance for a while, and apparently this is how they're doing it now, but the main point holds true of purposely avoiding income.
From an a16z partner:
> So, though we can’t be sure, it looks like the capex is not going up because Amazon’s existing business has become more expensive to run, but because Amazon is investing the growing pool of operation cash flow into the future. All of this brings us back to the beginning - Amazon’s business is delivering very rapid revenue growth but not accumulating any surplus cash or profits, because every penny of cash is being ploughed back into expanding the business further. But, this is not because any given business runs permanently at a loss - it is because the profits from what is already there are spent on making new businesses. In the past, that was mostly in operations, but in recent years the investment firehose has again been pointed at capex.
In case it's not clear, capex doesn't avoid income (at least not now). Capex is paid for with (after tax) profits, debt or new capital. Of course depreciation will reduce profits in the future, maybe you mean that.
There is a bit of flexibility in when things are expensed, but there are rules. You cannot buy a building and expense it today. On the other hand, you can spend a lot in marketing or some forms of R&D and you have to expense them now (they cannot be capitalised, even though in fact the return on the investment will come in the future).
There are different accounting strategies for when you recognize income/expenses.
Say you land a long term contract to provide a service for 5 years and you need to buy extra hardware to fulfill this service, you can choose to expense the hardware immediately in the first year while you let the earnings come in over the next 5 years. In the first year you would be taking a huge loss (on paper), and in the following four years you would see larger than average profits (on paper).
Alternatively, you could acknowledge the full value of the contract immediately. Or another alternative is to expense the hardware over time.
I'm not an accountant, but this analogy is my basic understanding of the flexibility that companies have.
Companies don’t actually have flexibility on this. There are Generally Acceptable Accounting Principles (GAAP) that govern how you must handle various kind of expense or profit.
In the case you provided, the revenue must be booked when it is payable under the contract - if it’s invoices in yearly installments, then it comes onto the books at that point. The capital expense for the equipment must be depreciated over its useful life, not when it is purchased.
You can't just expense stuff like that. For example you buy a warehouse you can't depreciate it all in one year. Retail is a competitive low margin business. Amazon has always had crazy P/E ratio. I could never really understand it. Maybe I could understand aws, but I can't understand the valuation of the core amazon business. Suppose amazon grows to the size of walmart. Walmart is only worth 260B, and they generate a ton more cash than amazon.
You're right that it's a more complicated process than it sounds, but it's been a common trick for ages. Apparently, however, in recent years, it has been focused on capex while still retaining the same fundamental idea.
In the words of an a16z partner[1]:
> So, though we can’t be sure, it looks like the capex is not going up because Amazon’s existing business has become more expensive to run, but because Amazon is investing the growing pool of operation cash flow into the future. All of this brings us back to the beginning - Amazon’s business is delivering very rapid revenue growth but not accumulating any surplus cash or profits, because every penny of cash is being ploughed back into expanding the business further. But, this is not because any given business runs permanently at a loss - it is because the profits from what is already there are spent on making new businesses. In the past, that was mostly in operations, but in recent years the investment firehose has again been pointed at capex.
Also, as a separate comment, I understand the crazy appearance of Amazon's valuation but I think it's one of the most justified giants in terms of market cap.
They're positioning themselves as a monopsony for the modern world, even expanding into groceries and now, evidently, pharmacies.
Imagine one company serving as an access point for so many of our goods, while wielding dubious control behind the scenes to extract profit and move vertically through the supply chain. It's easy to imagine a future where we simply buy the cheapest, reliable goods whenever in need, and end up with Amazon lightbulbs that power our Amazon TV stick, etc, etc, etc. It's scary to just see how many cities are bending over backwards to try to be the location of Amazon's HQ2.
Their move with the Echo has gained them another critical access point in the future: smart homes. In the same way we require mobile phones for our apps, we'll require a hub for our IoT devices, preferably voice-activated, and that will be the Echo.
It's hard to even sum up all of their advantages, but as someone who has competed with them in one industry before: it's a damn nightmare.
Company A grows revenues at %5 per annum. Company B grows revenues at %4.9 per annum. In both cases the trend is equally likely to continue in perpetuity. And neither company is expected to ever pay dividends.
Which stock are people going to buy? _Everybody_ is going to buy Company A's stock and _nobody_ is going to buy Company B's stock. P/E doesn't matter because 1) no dividends and 2) it's not a proxy for relative risk (we established risk is identical between the two).
Amazon is special because it's potential for revenue growth is believed to be nearly unlimited. As long as they're not losing money, and as long as they have enough profits to continue growing revenue, people will keep investing. Once the specter of stagnant revenue growth appears, Amazon's stock will probably come crashing down.
Basically, investors chase revenue growth, not profits. Berkshire Hathaway works the same way. Buffet might be a value investor who buys companies that can grow profits, but the price of BRK.A tracks the revenue growth of the holding company, not its profits.
Conversely, Wal-Mart's revenue growth has completely stalled. In fact, the stock price plummeted the year that revenue decreased slightly.
This is how things look as far as I can tell. I'm not a financial professional, and even if I'm right I'm sure there's a far better way (more technical, more comprehensive) to explain this dynamic.
Walmart is a 500 billion dollar company. Even 1% growth is 5 billion in revenue. They are asymptotic to the US economy growth which isn't growing much.
But the point is that the absolute figures don't matter themselves. Investors chase revenue growth.
The huge absolute revenues of Wal-Mart do suggest that revenue growth opportunities are structurally limited by the size of the domestic economy. But then again, unless and until every brick & mortar store in the U.S. says "Wal-Mart", they could still grow. That sounds unreasonable, but it's basically how people see Amazon: capable of growing revenues in large part by capturing existing markets, and being able to do that for the foreseeable future.
You said you could never understand why Amazon attracts so much investment despite their P/E and despite the poor margins of the retail industry. I realize you probably said that rhetorically, but in any event my point was simply that profit margins don't matter; what attracts investment is revenue growth. I'm sure there are many reasons--some rational (the corollary of revenue growth is growing marginal profit _potential_), some not--but it is what it is. And it's pretty much how investment has always worked.
Indicators like P/E only matter because of what they signal about future revenue growth. A poor P/E often suggests poor capacity for growing revenue. It's a heuristic, and if more direct evidence gives you reason to believe otherwise then you discount the predictive value of the P/E metric accordingly.
I suppose another way of looking at it is that Wal-Mart is at the phase where they're capturing profits, not growth. Their profit taking years were priced into their stock during the growth period; as they grew revenue their potential for future profits grew and this was immediately reflected in their stock price. If you look at the financial graphs, their stock price has remained steady with their revenue. When overall revenue declined the stock price dropped sharply, because revenue decline implies a decline in future profits and markets will quickly price future prospects into today's stock price. So in the language of "fundamentals" investing, profits are ultimately what matter; but _future_ profits, not today's profits. Future profits is just another way of saying profit potential; and the best indicator of profit potential is today's revenue growth.
Their business outside of AWS is generating immense cash flow. That's a lot more important to Amazon's business than most headline measures of profitability. Overall they produced $8.1 billion in free cash flow for the prior 12 months and $17.1 billion of operating cash flow. That's what enables them to continue to invest so heavily.
On the other hand, Amazon generates a lot of free cash flow. Roughly $10B worth last year or 7% of revenue (or an impressive 21% of gross profit).
It earns this healthy margin because customers pay Amazon before Amazon pays suppliers. Normal companies have to fund their businesses by raising debt or equity, whereas Amazon gets free loans from merchants. Exceptional way to fund growth.
Protip. Put expensive stuff you want for yourself on the registry. It's unlikely that anyone will buy it (but hey if they do great!) but after the due date they send you a coupon for 20% off if you buy everything left on your registry.
We got a bunch of lego sets for the older kid that way, and the discount counted!
SubProTip, you can get a 15% registry completion discount every 8 months, just change the due date for your baby. And you don't have to buy everything in the registry, it applies to whatever subset.
They also have a page to generate CSV reports on your purchases. I noticed the wife and I spent well over $10k in last 12 months. Up 2× or 3× since last year!
Wow. 34%? How does that happen at a company of that scale? That's simply incredible, they are hitting it out of the park like Apple and Google, FANGs are dominating this world at this stage.
I am very curious about Wallmart policies against Amazon growth. With this pace amazon will eat Wallmart eventually. And Wallmart is biggest company on earth. What they are going to do?
Walmart isn't the biggest company on earth by most means.
Last quarter, Walmart reported $31.8B profits on $123.4B earnings.
For the similar quarter, Amazon reported $14.5B profits on $38.0B earnings. So Walmart dwarfed Amazon overall.
Amazon's fresh results are great, and it helps to close the gap between them, but they are still much smaller than Walmart.
Unless you're talking online-only, in which case the comparison switch around, and Amazon is already much bigger than Walmart. But Walmart's online sales are a small percent of their earnings.
Walmart's online business is booming and its offline retail business is still four times the size of Amazon's retail business. Walmart's online retail business is about 30% the size of Amazon's and growing twice as fast. Walmart apparently isn't going quietly.
"The discount chain reported on Thursday that U.S. online sales rose a staggering 63% in the first fiscal quarter of the year, following last year’s overhaul of its online marketplace"
Growing by a third in one year at that scale is completely mind boggling to me.
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