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  • margiegundersson margiegundersson Feb 4, 2000 4:30 PM Flag

    Heh Nemm -- Could you take a look at

    this please.

    Thanks for doing *your*
    analysis on the book profitability accounts.

    started with your analysis, and although I do not agree
    with some of your margin assumptions, there appears to
    me a glaring error in your initial math (from your
    PT 1) of your post.

    At the beginning, where
    you said:

    "Now let's look at all of the
    expenses together.

    Total expenses for S&M, PD,

    When I calculate total M&S, PD, and G&A expenses:
    (M&S)(179,424+(PD)57,720+(G&A)26,051, I get $263,195,000. If we reduce this expense by
    $70M for non-book coupons, we get

    47% of $193,195,000 is $90,801,650 and *not* the
    $68,330,480 that you base the remainder of your
    analysis/margin assumptions on. Is it possible that you have
    removed the PD expenses for books? I hope not...

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    • on fulfillment. Please keep up. The extra amount
      involved mostly extra shipping charges to ensure packages
      arrived before Dec. 25 and not the 26th during the rush
      season. You won't have those type of time constraints any
      other time of the year. Those costs will drop back to
      Amazon's pre-hoiday norms and the co. has give guidance as
      such. Q4 was 16% not 17.

      The mention about
      integration is merely a matter of form. In the early stages
      of category development this is a no brainer. In the
      meantime the company will enter "more new categories than
      in 1999" as management has announced and is already
      committed to.

      Amazon is already involved with food
      and grocery through their investment in

      The model is not to reduce space usage. The warehouse
      expansion should have tipped you off to this. The smaller
      items already formed the core of products in a very
      practical way during the earliest part of the start up
      stage (books, music, video). The goal now is to sell
      everything and to increase absolute gross profit dollars,
      not to fuss about how much space items will take up.
      Of course what you say is true about electronics
      which is why it receives priorty to be ramped up at
      this time, in addition to the momentum in sales for
      digital equipment. But it is not an exclusive mandate
      which ignores the desire for many other categories

    • Amazon has admitted that their inventory system
      is not well integrated in the SEC filings. Until
      this is fixed, it argues against further product
      lines. Amazon is spending 16-17% of the value of the
      orders on fulfillment, which is well in excess of
      industry standards.

      Growth is predicated on at
      least two elements: gaining market share in one's
      existing enterprises and adding others. There are those
      who argue that the internet is an ideal venue for
      pornography, so maybe the next business will be
      They can sell "content" as well as the equipment.

      If Amazon wanted to enter the food and grocery
      arena, and I presume that they do, they would be prudent
      to limit themselves to high-value/low weight,
      nonperishable items because few people would want to pay the
      full shipping cost, for, say, a 10 pound box of
      laundry detergent. Consequently, they would do well to
      partner with a company like New Braunfels Smokehouse,
      which makes excellent beef jerky and other preserved
      meats, and offer food gift baskets.

      Amazon is
      hitting the high end of the jewelry market with To hit the midrange of the jewelry market, they
      could partner with Simply Whispers, a company that
      makes excellent, moderate-cost jewelry. Earrings are
      $7-15 a pair, and hypoallergenic.

      Given the
      difficulty that Amazon is having earning a profit in their
      current enterprises, even subtracting away the
      infrastructure buildout, I thought that Amazon might go after
      greater depth in their current product lines rather than
      add additional enterprises. They would certainly
      prefer to increase their sales of high-dollar items like
      electronics than sell an equal dollar volume of toys because
      their shipping and handling costs will be much greater
      in the latter case. It also has the advantage of
      reducing the amount of space required per dollar of sales.

    • at 48? Personally I think you blew it much
      earlier by not getting into YHOO even before you finally
      decided to sell you AOL.

      TWX? Gimme a break.
      Ancient history. What we have here is a temporary case of
      the Greenspans. But the effect won't last forever,
      you know. Just long enough to fake you out.

    • There is nothing to prevent Amazon from building
      warehouses simultaneously in different locations. My point
      is that the failure to capture the entire cost of
      operating the warehouses in the divisional results
      understates the cost of operations, and hence the selling
      expenses are understated.

      When a building is in
      operation, it is necessary to heat, cool, and maintain all
      of it, not just the parts that are currently used to
      store merchandise. Warehouse space is seldom fully
      utilized because they are planned for peak periods.
      Consider your kitchen cabinets at home. There are times
      that they are fully stocked and times when they might
      be half full.

      I thought that growth was 170%
      annually. I was looking at FY 98 vs. FY99 results. If the
      warehouses are currently 10% occupied, they will be 27%
      occupied in a year, 46% occupied in 2 years, and 78%
      occupied in 3 years if growth is 170% a year and the
      product mix is about what it is now. There will be
      seasonal fluctuations in the demand for warehouse space. I
      presumed that your statement that Amazon was planning for
      2-3 years of growth was reflected in the amount of
      space that they were building. At the three year mark,
      they have built 10-15% more space than what would be
      required even if the 170% annual growth rate was

      I believe that the best that Amazon can sustain is
      50% growth annually, which is purely my opinion, and
      is the result of the fact that e-commerce is
      becoming more competitive all the time. The rate at which
      they are spending money argues against the long-term
      viability of the company. There will have to be another
      bond issue within a year to keep the company going
      and/or a severe cutback in advertising and other
      variable cost, and an increase in prices.

      I won't
      deny that Amazon "could" rent space to any of the
      companies in which they have made investments. The point
      remains that the space is underutilized at the present
      time, and this fact is not captured in the statement of
      selling expenses. It is a fixed operating cost that must
      be captured so that the true cost of sales is

      I'm finished with the warehouses now.

    • Mistake was to say "looking at the quarterly
      figures, blah, blah..."

      Looking at those numbers
      gives you no idea about future growth. For one thing
      you did not tell me how many new businesses you are
      forecasting Amazon will enter and what their space
      requirements will be. (Or maybe you are myopically fixated on
      only the current businesses. Tsk, tsk...) I know your
      first thought will be to evade making a forecast. To
      cop out and say the company has not shared this info.
      with you. But you can't make an irresponsible statment
      about the space requirements such as you did in your
      previous post and not be expected to be pressed about

      Last year analysts began the year forecasting $1.2B in
      sales for 1999. That turned out to be too low. Amazon
      exceeded this amount by 37% with actual of 1.64B. Partly
      this can be attributed to the success of many of the
      newer businesses. Toys growth from 0 to 95M for

      Now we have predictions of 2.75B for this
      year and 4.6B in 2001 (a).

      Even if they are on
      target this means that on an absolute dollar basis that
      the company may triple in size by 2001. If you take
      into account the fact the forecasts may be too
      conservative as in 1999, then this could mean in 2001 alone
      actual growth to 6.302B by 2001 or nearly 4-fold

      (And I'm still not factor in the 37% beyond the
      estimates for the current year just to show you what a fair
      minded guy I can be.)

      But this is not only about
      sales growth, as we were discussing space requirements.
      DVD grew 500% YOY. Now we have higher space
      requirement entries such as toys, electronics and home
      improvements. As those grow exponentially over the next year or
      two, space requirements at a somewhat faster rate than
      revenue dollars.

      Which is another flaw in your
      hasty comment. Revenues and warehouse space are not
      going to be growing at the same rates.


      2000 revenue estimate:
      new est. ....... prev.
      est..... dif.
      $2.75B ....... $2.6B .....

      2001 revenue estimate
      new est. ....... prev.
      est..... dif.
      $4.6B ......... $4.4B .... +4.45%

    • A fourth consideration is the ever-present 500
      pound gorilla -- over-valued equity markets. This is
      obviously a very big
      issue for the Fed and a lesser one
      (but growing) for the ECB. Alan Greenspan has recast
      this issue completely since he first
      opined over
      "irrational exuberance" in December 1996 (at Dow 6437). In
      last week�s Humphrey Hawkins testimony to the

      Congress, he was quite explicit in equating the US
      economy�s growth excess to the wealth effect: By his
      reckoning, it was
      roughly equivalent to one percentage
      point of extra GDP growth. The fact that this excess is
      thought to be largely
      stock-market-induced is hardly
      idle conjecture. Nor does it matter that stock market
      strength is narrow or broad. The US
      central bank has
      been very deliberate in expanding its explanation of
      what drives the real economy -- adding an
      powerful wealth effect to traditional income
      effects. The Fed, in my view, is sending an increasingly
      clear signal that a
      macro growth excess --
      irrespective of its source -- must now be eliminated. While
      this need not be interpreted as a strategy
      explicit equity-market targeting, it could well be
      tantamount to a strategy of implicit equity market

      Fifth, is incrementalism. Neither the
      Fed nor the ECB seem likely to make large
      interest-rate adjustments at upcoming policy
      meetings. With
      core inflation still low, they have the luxury of
      sticking to 25 bp tightening dosages. Moreover, with
      economies more and more dependent on financial
      markets, the possibility of destabilizing, asymmetrical
      wealth effects
      cannot be ruled out if equity markets
      finally correct. Incrementalism allows central banks the
      luxury of backtracking should
      their policy actions
      prove too disruptive. That, of course, would underscore
      the ultimate moral hazard dilemma all the more.

      My own guess is that G-2 central banks would welcome
      an "orderly" correction in over-valued equity
      markets. Maintaining
      an incremental approach to
      tightening would enable the authorities to tough out the
      inevitable aftershocks.

      There is an over-arching
      theme to all of the above. In the depths of the
      financial crisis (late 1998), central banks eased

      aggressively in order to save the world. In doing so, they
      essentially abdicated control over their real economies
      financial markets. Global healing was a signal
      that policy normalization was in order. But now as the
      world moves beyond
      healing, it is imperative for
      central banks to act in order to regain control. The
      longer they wait, the tougher that task will be.
      risk is that short-term interest rates in both the
      United States and Europe may have to rise a good deal
      more than the 50
      to 75 bps that financial markets
      (and our US and Euroland economists) expect. New
      Economy or not, some things never
      change. Don�t fight
      central banks.

    • Excellent commentary from MSDW:

      Roach (New York)

      Even in the New Economy, it
      may still pay to heed old rules. For investors, one
      of the oldest is, "Don�t fight the Fed."
      or not that adage can be amended to include the ECB
      is an open question. But it�s increasingly clear to
      me that two
      of the world�s major central banks
      are on a tightening path that poses considerable
      risks to ever-complacent investors.

      There are
      five key dimensions of central bank risk that I
      believe will bear most critically on world financial
      markets in 2000.
      The first is an important tactical
      shift in the approach to monetary policy. The central
      bank tightening of 1999 was all about

      "normalization" -- returning policy settings to the pre-crisis
      norms that prevailed in early 1997. While the Fed and
      the ECB
      have succeeded in normalizing nominal
      short-term rates, they have not accomplished this objective
      from the standpoint of
      real interest rates. That�s
      because there has been an oil shock that has boosted
      headline inflation about 0.5 percentage point
      pre-crisis norms. In other words, real interest rate
      normalization requires more tightening than nominal interest
      normalization; while G-2 central banks have
      accomplished the latter, they have not achieved the former.

      But there�s more driving central banks in 2000
      than policy normalization. A second dimension of
      policy risk is the coming
      transition to a more
      classic counter-cyclical monetary tightening. That�s
      especially the case in a fully-employed US
      where the Fed is now going out of its way to state
      quite explicitly that GDP growth is far too fast. The
      US central
      bank has made this statement in the
      context of a significant upward revision to traditional
      macro speed limits; old economy
      speed limits were
      thought to be around 2.25%, whereas new economy limits
      are believed to be in the 3% zone. For a US

      economy that has been on a 4.2% growth path for nearly
      five years, and 6% over the past two quarters, enough
      is enough.
      The Fed wants a slowdown. And, by the
      way, to the extent that America�s growth dynamic has
      been increasingly tech-led,
      it seems reasonable to
      believe that this sector will bear the brunt of the
      ensuing downshift.

      A third element of central
      bank risk is the time-honored credibility issue. As
      Ottmar Issing of the ECB once said to me,
      "...all we
      central banks have is our credibility." That credibility
      is now under attack. There�s the "moral hazard play"
      in the
      United States, where many believe that
      the Fed is trapped in the context of an equity market
      that has become too big too fail.
      And there�s the
      ECB�s own dilemma, with a sagging currency symbolic of
      a new wave of politically induced

      euro-skepticism; in that same vein, Joachim Fels has also made the
      point that the ECB may simply believe that its
      rates are too low to effectively manage the
      Euroland economy. There�s only one way to regain the upper
      hand on the
      credibility front -- more aggressive
      tightening than financial markets are expecting.

    • ultra low float, small price,
      this thing can soar with a little push
      and give Amazon some competion

    • Nice designer bags so that you can be in style
      bag holders.

      Also, you can buy headbands -
      they are on sale demand is drying up as the 60's wont
      be here for long.

      Poodle skirts and other
      relics from the 50's are selling like hotcakes and for
      the shorts thats good in two ways, first because the
      50's are coming, and second because the more AMZN
      sells the more they lose.

      Come on bag holders is
      $ 65 7/16 the best you can give me, I want to short
      again, come on, prop up a little more.

      Its a
      beautiful day today.

      The Glen Miller band members
      are calling thier travel agent, they were hoping to
      catch some spring training in Florida before having to
      come up, we all thought at least the second week of
      March before the 40's, but keep your seatbelt

      Come on Bullshit upgrades, give us one more so we can
      short this piece of crap from another false plateau.

    • I - and many other longs - have been critical of
      the company at times. You don't know what you're
      talking about. You haven't been here long enough to make
      those baseless comments.

      Enough said.

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