

Amazon Reports First Quarterly Loss in 4 Years - mermalaude
http://www.nytimes.com/2012/10/26/technology/amazon-reports-its-first-quarterly-loss-in-four-years.html?_r=0

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simonsarris
Shares already recovering, loss was "better" than expectations, a lot of their
spending is on important business stuff (warehouses, kindle, web properties)
that will yield returns later.

In other words, revenue is nearly identical and there's no profit, presumably
because of these new things.

Amazon is one of the few very large companies that has extremely high
potential for growth. I made an OK amount of money buying them after post-
earnings panic and selling 1 day to 60 days later this year and last.

If it ever goes back down to 190 I might throw some % of my long term money
their way.

(100% of my long term money, which is about $1000 every two weeks, is
currently just going to TGT, another long term big company that already has a
dividend but still has plenty growth potential)

((90% of my short term money, on the other hand, was buying 10K shares of OCZ
at 4.90. Now its at 1.36. Ouch!))

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thetabyte
Dumb question, as I literally know nothing about stock or savings: isn't it
generally a bad idea to put 100% of your long term money in any one place?

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confluence
Isn't it stupid to just to have one job, one car, be a citizen of one country,
have one house and one family. I mean really - one must diversify. What would
you do if you lost any one of those?

No, it's not stupid to concentrate wealth. Problems only arise when you do it
stupidly, like buying too big a house, being part of the wrong family, living
in the wrong country or buying an unsafe car.

Diversification does not reduce risk but it cuts your returns in half. All
correlations go to one in a crisis and you can't hedge the end of the world.

Note: To all downvoters - putting all your eggs in multiple baskets does not
protect you from an asteroid impact any more than a person with all eggs in
one basket.

People who think diversification makes them safe are frankly wrong.

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nandemo
> Isn't it stupid to just to have one job, one car,

Indeed people who own a job, a car or a house are well advised to have
insurance. And insurance is a form of diversification.

For countries the analogy is flimsy, but if you live in a country that has had
any of: wars, dictators, property confiscation or high rate of violent crime
in the recent past (which describes most of the non-developed world, including
emerging countries), it's a good idea to have a passport and a way to move
elsewhere.

~~~
confluence
Then buy insurance - put out a costless collar if you are that worried.

If you want to diversify you need to actually buy reverse correlated assets.
So go ahead - hedge with options, hedge with futures, hedge with shorting the
indices.

But don't think buying disparate companies protects you - it doesn't.

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jamesaguilar
There are degrees of protection. No protection is perfect, but you're a lot
less likely to be totally wiped out with a diversified portfolio. 100% of my
wealth is in company A, and it goes bankrupt, I have nothing. If I have it in
two companies, unless they are perfectly interdependent, I lower my likelihood
of being completely wiped out from 100% to <100%. Concentrating wealth in a
single company increases the variance in your outcome, which is something most
people consider bad in financial planning. It also requires active management,
because even most temporarily successful companies do eventually go bankrupt.

This is basic personal finance. TBH, I'm really surprised your comments aren't
all at the lightest shade of gray already.

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confluence
> _basic personal finance_

I fully understand the arguments for diversification. Just like I fully
understand CAPM, modern portfolio theory and the assumption that var=risk.

But it's all bullshit. Why are you investing in companies that have that risk?
If you understand which companies return higher returns - why aren't you all
in on them?

It's bloody hard to find good companies and when you do - why on earth would
you diversify into their worse off counterparts? You need to have heavy
concentration in great companies where you are perfectly fine having a 10 year
hold on at the right price.

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polyfractal
> _basic investing_

Either I'm misunderstanding your argument or you are missing a fundamental
tenant of finance (and indeed, most things in life). Higher returns typically
comes with higher risk. A brand new startup is high risk with high reward if
it pays out. The same thing applies to financial investments in high risk
companies.

People take risks because they want to try and beat the historical growth in
their portfolio. By taking on that risk, they know that they may lose money
instead of grow their money.

Diversifying allows them to adjust how much risk they want to take above the
standard market growth.

"Great Companies" is such a bad guide star for investing. Sears looked like a
"great company" 10 years ago. Kodak? Any big box retailer?

Anyway, there are perfectly sound investing theories that say investing in
_the worst companies_ can result in higher returns than any "great company"
investment portfolio. Value investing at it's most extreme. You just need a
few of the losers to become mediocre to make huge gains, while trying to get
great companies to grow past their high stock price is extremely hard.

I agree with your long-term strategy...but I don't see any reason to hold
long-term stakes in individual companies. Why not just hold long term on index
funds?

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confluence
Risk and return are not correlated. There are risks and there are returns. See
AAA bonds during GFC. Great businesses are great companies at reasonable
prices not overvalued growth stocks.

Most of modern economic and finance theory is based on fundamentally broken
models of risk and return.

~~~
polyfractal
Define "great company".

Known risks and future returns are certainly correlated. Unknown risks
(financial crisis meltdown) are obviously uncorrelated because they are
unknown. You can't control for those, which is why you _diversify_.

What are you going to do when your "great company" has a horrible CEO scandal
and sinks the company? That's an unknown risk that would be prevented by
diversifying your investments.

Known risks (such as "can this company execute it's vision well enough to be
profitable at 500m revenue/year?") are what you weigh against the return ("I
personally think so, but the market doesn't, so I'm getting a discount on the
stock price when it eventually succeeds").

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trimbo
Important tidbit buried in there: "Amazon said it lost 60 cents a share in the
third quarter, but more than half of that was from its investment in the daily
deals site Living Social"

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Androsynth
About two months ago I was thinking that the bubble, of which everyones been
talking about for the past years, might finally pop soon. I thought I might
short some major tech companies and make some money off of it. I had two
indicators that I was looking at to determine the start of it:

1-Zynga begins laying off people. (really, any big web 2.0 company begins
laying off people, but zynga seemed like the logical choice.) The way I see it
is this: if a flood of veteran web-devs, artists, PMs, etc hit the SF market,
salaries will go down slightly as demand goes down. Since techies spend their
money on tech, this will lead to revenues going down within the industry. This
will begin a positive feedback loop because everything seems to be built on
top of itself right now.

2-Second indicator is that Amazon's stock would fall. This is because they are
essentially the bellwether of the tech industry: everyone runs their stuff on
AWS. If their revs go down (which it doesnt look like they have), that means
companies are feeling the pinch. Again, a positive feedback loop could quickly
ensue.

Now that my two indicators have come to pass, I still don't believe strongly
enough in the bubble theory to short the industry. But if anyone else wants to
take my theory to the bank, I would be happy to take a 10% referral fee on any
and all gains :)

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jser
Amazon does not breakout revenue for AWS -- it's grouped into the "Other"
category. Analysts estimate it could be nearing a $1B business, but Amazon has
a yearly revenue exceeding $48B. I don't think the stock market places much
value on AWS today, so a slowdown should not greatly impact the stock (if the
market did, we would have seen the stock decline during AWS outages).

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dinkman
With its price-to-earnings multiple in the stratosphere, Amazon often comes up
in conversation as being "overpriced." While this conclusion may be true, it's
not because Amazon is unprofitable...

Publicly traded companies optimize for return-on-invested-capital (ROIC),
which includes profits (dividends) plus increases in equity value (share
price).

Stable companies in stable markets often make the greatest returns by
increasing revenue and reducing costs (i.e., optimizing for earnings).
Companies in high-growth markets (esp. competitive ones) typically optimize
for long-term market share/growth (which manifests as increases in equity
value). Amazon falls into the latter category.

Not sure this makes sense to/helps anyone, but yeah, that's why Amazon
operates the way it does.

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donavanm
Get big fast. Amazon is still getting bigger, and accelerating the pace
recently.

The "low margin retailer" comments about AWS are funny too. AWS is effectively
a billion dollar company, eligible for HUGE subsidies (from retail), under
effectively no pressure for revenue/profits, and is ok with 3% margins. That
sounds like a nightmare to compete with.

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codex
I think Amazon's profit per employee is around $6K. Compare to Apple at $600K.
Amazon is practically a non-profit. Not surprising, as they play in a shitty,
ghetto space--retail.

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polyfractal
Besides what other people have mentioned, there is also the fact that Amazon
employs a lot of people, and many of them are performing relatively mundane
service jobs. Picking and packing products from the Amazon warehouses requires
a large workforce, despite all the advancements in automatic warehousing.

Profit per employee isn't really a useful number in this respect.

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codex
This is my point; that Amazon is a shitty business because they have chosen a
terrible sector: retail. That's what you get when your main competitor is
Walmart. Look at the absolute profit numbers: 1/40th the profits of Microsoft;
1/100th the annual profits of Apple; 1/30th the annual profits of Google.

That said, they are desperately trying to get into real tech. businesses.

~~~
polyfractal
Fair point - everyone knows that retail is a razor-thin margin arena to play
in.

I would argue that their profitability is a lot more stable than Apple. A few
missteps and Apple is no longer the golden child. They have to continue to
innovate or they lose their special status. Executing on a retail strategy is
in many ways simpler than "build the next innovative consumer electronics
widget...sell for astronomical price".

I'd take stock in Amazon over Apple any day.

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dangrossman
If I had any cash sitting in my brokerage account, I'd probably buy a few more
shares of AMZN with it right now.

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johnrgrace
I like the company but at 250-300 times earnings it's a darn expensive stock.

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malandrew
I'm guessing everyone is waiting until Amazon is the only game in town and can
increase margins every product but those that would allow a new competitor to
survive to profitability.

Once they are in a position to increase margins without risk of lost market
share, the current valuation will be justified.

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simonh
Fresh competition is never more than a click away.

I get that Amazon is playing the long game, forgoe profits now to build a
dominant company for the future. But how long have they been playing this long
game for? How much longer before it pays off? This is a 17 year old company.
People younger than Amazon are getting married and having kids.

~~~
e28eta
During that time, they've been building an amazing infrastructure, and that
won't be easy for a new competitor to match.

I ordered from a different retailer last Saturday night, and I had forgotten
how long it takes to get stuff shipped in the real world: FedEx didn't receive
the package until Tuesday at 8pm. With Prime, I'd already have it by Tuesday
night.

Shipping speed isn't the most important aspect of online shopping, but I think
it's indicative of how Amazon's size is already providing a competitive
advantage that is hard to match.

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gamble
The fact that people are willing to wait a couple of days for Amazon when they
can buy exactly the same product immediately for slightly more money at the
local Best Buy speaks to how much they're willing to put up with for a
marginal cost savings. I think that anyone who expects a "sinister phase II"
where Amazon takes advantage of their market share by jacking up prices
fundamentally misunderstands Amazon. They are, and always will be, a low-
margin retailer.

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wiredfool
From my experience, sitting on the couch and ordering something is a whole lot
easier than actually going out and getting it. And it comes right to the door.
In a day or two. Subscribe and save was even better when the kids were little.
Diapers and wipes. Delivered automatically.

I don't find that amazon's prices are that amazingly good. Sometimes they're
better, sometimes they're not. I've found small things for half the price in
local shops sometimes. Newegg will beat them for anything electronic, but
their shipping is really erratic. And since I'm in WA, there's no tax savings.

Maybe I'm a special case. I don't live in a big city, but you can see one from
the beach. It's 45 minutes to Walmart, 2x that to Target, Trader Joe's, the
Apple Store and other pillars of civilization. Hell, it's 10 minutes to the
nearest store (plus whatever time it takes to get the kids into shoes and
strapped into the car).

Amazon wins on predictable convenience. They're the biggest store in the
world, and they're right here. And whatever I want will be here in 2 days,
shipped free. (yeah, we have prime. it's like crack)

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iyulaev
Say what you want about some of their other business practices, but they
appear to have successfully destroyed rents in the retail industry, which is
great for consumers of retail. Regardless of how they do for their
shareholders, that is a real benefit to society.

Right?

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pyoung
That is a difficult question to answer. A good parallel to what amazon is
doing to retail is what globalization did to manufacturing. As we all know,
manufacturing in the US has been gutted and is now largely based in developing
countries. While this is good for the consumer because products are cheaper,
this also resulted in a great deal of unemployment for a certain category of
workers (primarily low skill). Retail, which is also a major employment source
for low skill workers, is now facing similar pressure from companies like
Amazon, who employ significantly fewer people than the companies that they
replace.

Ultimately, developed countries are going to have a difficult time finding
good paying, reliable jobs for low skilled employees. This is an inevitable
by-product of our shift to a globalized, modern economy and is one of the
primary reasons why the US and Europe are struggling to keep their social
safety programs solvent.

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ars
> As we all know, manufacturing in the US has been gutted and is now largely
> based in developing countries

We all know it, and yet it's not actually true. America is the largest
manufacturer in the world.

The main that happened is America switched from making many multiples of cheap
item, to making smaller quantities of much more expensive and complicated
items.

~~~
WalterBright
The CNC mills have revolutionized small production runs. For example, it used
to be very hard to restore old cars for which parts were no longer available.
For example, decades ago a guy down the street restored some old Mercedes
limousine he showed me, and I asked him how he dealt with the unavailablity of
parts. He said "oh, I just made them" and showed me his fully equipped machine
shop in his basement.

That can now be done with a simple CNC machine.

A lot of shops have sprung up that apparently have libraries of CNC designs,
and they manufacture the parts on demand.

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outside1234
I feel like if Jason Fried were to comment on this article that he would say
there is no time like the present to practice earning money.

I'm not buying the "we'll grow really fast and then profit later" - didn't we
learn about how that worked out already with the dotbomb?

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benmanns
I think the difference here is that Amazon is taking in massive revenue and
investing it in future infrastructure. Jason Fried advises against taking no
revenue now while expecting to "figure out" some way to make some revenue in
the future. Both have little or profit now, but Amazon can reasonably expect
to make profit in the future, while that SuperCoolFreeApp can't.

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KalobT
Microsoft also reported their first loss not too long ago.

