Not really worried about what it will do tomorrow or next week or even next year.
Thinking about its valuation in 3-5 years.
Not sure if Mr. Rimpinths analysis of potential profitability is correct or not but it does seem to me that amzn is gaining market share partially because they have cut prices.
It also seems, from a fairly cursory look at bks and bgp financials, that their margin is around 2%
Qestion 1 -- what is the actual net after tax margin that the large booksellers traditionally enjoy?
Qestion 2 -- Does anyone know exactly how much amzn is undercutting bks and bgp.
bks and bgp combine for something like five billion dollars in annual sales. Question 3 -- does anyone know what the total book sales are in USA? In English?
It seems to me that the most important variables here are as follows:
1. What is the size of the book market.
2. Is this market growing -- I would bet that long-term it will not grow, due, in part, to the influence of the net itself -- just a bit more competition for leisure time and more access to info that previously was only to be had in books.
3. What is the current margin. Would bet that internet selling cant beat the current margin over the long term. The reason is that internet bookselling will commoditize the market -- You migh pay an extra 50 cents for a book because you like the ambience of a store or because it is close to home or because it has a great stock. On the internet, where everyone has everything, the only differentiation will be price which will keep prices down and margins low.
4. What % of books will be sold on-line? Dont tell me 100% because that wont happen for many, many years if ever. More like 25% in 5 years, maybe.
So, what I am thinking is that the entire biz is, say 20billion, with, in five years, 5bil on-line, with amzn holding maybe 1/4 of that -- that is bks and bgp wont blow amzn away, but they are going to get their share.
SO IN FIVE YEARS AMZN WILL HAVE SALES OF 1.25 BILLION WITH A MARGIN OF 2% OR PROFITS OF 25MILLION IN A RELATIVELY STAGNANT BUSINESS WITH FIERCE COMPETITORS. SHOULD SELL AT A MULTIPLE OF AROUND 10, GIVING IT A MARKET CAP OF ABOUT 250MILLION.
BIG QUESTION: WHAT IS WRONG WITH THIS ANALYSIS -- IT CANT BE THIS BAD OR EVERYONE WOULD SEE IT AND THE PRICE WOULD COLLAPSE OR IS THE INTERNET HYPE THAT STRONG.
"BIG QUESTION: WHAT IS WRONG WITH THIS ANALYSIS -- IT CANT BE THIS BAD OR EVERYONE WOULD SEE IT AND THE PRICE WOULD COLLAPSE OR IS THE INTERNET HYPE THAT STRONG."
That's the important question every AMZN bear needs to ask himself. Consider, 60% of the stock is owned by institutions, meaning they have professionals doing the analysis. JB didn't get where he is being stupid. Either what you say is correct, or it isn't. If it's incorrect, no problem. If it's correct, JB knows it too, and he'll take corrective action.
All your tried and true methods of analyss are ivalid for AMZN. The value of AMZN is not based on what they are now, it's based on what we longs believe AMZN will be in the future. To understand better, I suggest you read JB's letter to stockholders 1997. If you do short AMZN, I hope you don't use money your family needs.
I will be commenting (hopefully) by the end of the week on this great post. I have a lot of those projections and will share them. I will shortly comment on a few recent posts about pricing policies and net margins.
In the interim there have been excellent writeups by the following brokers. BT Alexbrown and Cowen.