At $986.92 per share, Amazon's equity is worth $474 b. Beginning 2013, it was $121 b; 2014, $182b; 2015, $137 b; and 2016, it was worth $270 b. Beginning 2017, it was $379 b. Is there any stopping to this story? The world has been bullish on the Amazon story, and for too long; threatening every business, they are asking, is Amazon coming for you? Is this going to be true, or all hype?
I have been valuing Amazon for long, and every time, I must admit, I have found the stock to be overpriced. Noting about it in March 2013, I asked if anyone knew it in advance.
In February 2014, I wondered how long is long term for Amazon, which was worth $160 b at the time.
I acknowledged in May 2015 that it is indeed a disrupting business; but then, I noted that the business is yet to make money. At $200 b market value, the storyline was this, and continues to be so:
In September 2015, it was time to talk about price and value. At $235 b market value, Amazon was on its course, as per Analysts of course, to move past $300 b.
I compared Amazon with Berkshire Hathaway in July 2016, and noted the differences in price and value. Both were priced by the market at $350-360 b at the time.
And I did ask the question, again, where's the cash?
And by March 2017, we were talking about how Jeff Bezos could become the first person to be worth $100 b as Amazon goes past $600 b.
I also noted that the market, if not the business itself, has the potential to take Bezos past $100 b.
Now we are in August 2017, and Amazon just released its June quarter results. As of June 2017, it had cash of $21 b, and operating assets of $9 b. Such low operating assets was due to its reliance on supplier payables of $35 b. You have to wonder about its business model, after all. The non-cash working capital is negative $21 b, amazing indeed. There is a long term debt of $7.6 b. It has only $42 b of long term assets excluding goodwill.
With $9 b in operating assets, Amazing is ruling the world, what with the market capitalization of $475 b. While shareholders have put in only $23.2 b, net of cash it is hardly anything. Put in another way, if it pays off its debt, the balance sheet will look like this:
Operating assets $9 b; Cash $ 14 b; and Equity $23 b.
Can someone with $9 b available for investment replicate its business model and disrupt Amazon? It looks so simple, yet so formidable. Book $9 b, market $475 b; is there some mismatch here? Alright, I am manipulating a bit; you can add another $15 b, which is approximately the accumulated depreciation to date. Still, $24 b of investment and you get $475 b in market value is something to ponder over.
The only profitable segment for Amazon is its AWS, which includes cloud computing. AWS is about 10% of consolidated revenues, but contributes entire operating profits.
Operating profits: North America made profits of $1032 m and International segment suffered losses of $1206 m, resulting in Amazon's operating losses of $174 m for the 6 months ended June 2017. It is only after AWS you see the consolidated operating profits turning positive to $1632 m.
AWS made operating profits of $1806 m for the 6-month period. The question is, why AWS should be Amazon? Both are, sort of, unrelated businesses. If AWS is incorporated separately, the market will have explicit numbers, and therefore may be more rational in pricing equity. AWS is an IT solutions business and therefore will have to be valued as such.
Amazon is an online retailer competing with both other online e-commerce and brick and mortars like Walmart. Then we can see clearly that Amazon is yet to make operating profits. Although it is generating operating cash flows, we do not know how much of that is attributable to AWS.
Excluding AWS, Amazon had revenues of $66 b for the past 6 months. How much can these grow in the next decade, or even after that? Of course, the world is its market. Yet, how much? What would be its long term operating margins? There are lots of questions of Amazon as a business, and much more of the market's expectations and pricing.
While there are more bullish on Amazon, we also find some who are on the other side of the story. And with this kind of market pricing, they are not very happy. Is it going to fall, or is Bezos going to be the richest guy on the planet? That's a trillion-dollar question.
I also noted that the market, if not the business itself, has the potential to take Bezos past $100 b.
Now we are in August 2017, and Amazon just released its June quarter results. As of June 2017, it had cash of $21 b, and operating assets of $9 b. Such low operating assets was due to its reliance on supplier payables of $35 b. You have to wonder about its business model, after all. The non-cash working capital is negative $21 b, amazing indeed. There is a long term debt of $7.6 b. It has only $42 b of long term assets excluding goodwill.
With $9 b in operating assets, Amazing is ruling the world, what with the market capitalization of $475 b. While shareholders have put in only $23.2 b, net of cash it is hardly anything. Put in another way, if it pays off its debt, the balance sheet will look like this:
Operating assets $9 b; Cash $ 14 b; and Equity $23 b.
Can someone with $9 b available for investment replicate its business model and disrupt Amazon? It looks so simple, yet so formidable. Book $9 b, market $475 b; is there some mismatch here? Alright, I am manipulating a bit; you can add another $15 b, which is approximately the accumulated depreciation to date. Still, $24 b of investment and you get $475 b in market value is something to ponder over.
The only profitable segment for Amazon is its AWS, which includes cloud computing. AWS is about 10% of consolidated revenues, but contributes entire operating profits.
Operating profits: North America made profits of $1032 m and International segment suffered losses of $1206 m, resulting in Amazon's operating losses of $174 m for the 6 months ended June 2017. It is only after AWS you see the consolidated operating profits turning positive to $1632 m.
AWS made operating profits of $1806 m for the 6-month period. The question is, why AWS should be Amazon? Both are, sort of, unrelated businesses. If AWS is incorporated separately, the market will have explicit numbers, and therefore may be more rational in pricing equity. AWS is an IT solutions business and therefore will have to be valued as such.
Amazon is an online retailer competing with both other online e-commerce and brick and mortars like Walmart. Then we can see clearly that Amazon is yet to make operating profits. Although it is generating operating cash flows, we do not know how much of that is attributable to AWS.
Excluding AWS, Amazon had revenues of $66 b for the past 6 months. How much can these grow in the next decade, or even after that? Of course, the world is its market. Yet, how much? What would be its long term operating margins? There are lots of questions of Amazon as a business, and much more of the market's expectations and pricing.
While there are more bullish on Amazon, we also find some who are on the other side of the story. And with this kind of market pricing, they are not very happy. Is it going to fall, or is Bezos going to be the richest guy on the planet? That's a trillion-dollar question.
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