else compels massive companies to adapt, to create new types of positions, by the hundreds? Who else dispatches teams to widely roam rural routes and residential neighborhoods on irregular and shifting schedules? Who else’s reach is so extreme that your arrow package swooshes in on a quiet Sunday evening, a day after launching that order? Of course. It’s Amazon. If you ask, they’ll place it in your trunk, while you’re parked at work. Really.
Anti-trust? Near total trust. We tell Amazon what we want, what we want them to be, or they know it already, before we ask. Amazon simply looks, listens, mobilizes, and fulfills, better than anyone in history. And as investors, when angry waves rock our days, our hopes, we want a big ship, or a star, to punch through. Of course it’s Amazon. Name one reason why it wouldn’t be.
that drone delivery idea from years back? Two weeks ago reports revealed that real world drone testing is now underway in Reno. That testing’s designed to evaluate NASA’s new drone flight programs to enable such services to go prime time. NASA turned things on their head in this one. Instead of telling drones what to do, they arranged their urban flight control system to instead tell drones what they couldn’t do.
Many years ago many shook their heads when Amazon founder Jeff Bezos hatched that mad cow drone delivery plan. No one’s laughing or shaking their heads anymore. No question exists any longer concerning Amazon’s drones, or dominance. The real questions are just how much and of precisely what, will they dominate.
Our question, and perhaps yours, is do you wish to be with them for that ride? So, is Amazon a good stock, now? That’s known as a tag, and two very strong questions. Both deserve answers. But welcome to the chaos. Is anything worth owning now, when a morning tweet moves the entire market with tsunami force? Is any stock a “good stock” in a tsunami? Well, maybe, not. That’s known as “a dodge.” Here’s the answer. Only time will tell.
fewer stocks are a good buy now. They’re either too expensive or, too macro dangerous, or too extended. The market’s a sector teeter-totter. That’s known as the tail of “the tape.” Opinion is not a singularity. Quality opinion is structured by fact. That means they are supported by the observable.
Fact. Amazon aka. “The Death Star” is as good as anything gets, as is their stock. Higher quality exists no where. No company’s future has ever been more secure, including Apple’s. Yes, Amazon also sells smartphones, and more than 2 million other items. AMZN has more money than most countries and is better positioned for any future, including any peddling anti-trust investigations. Guess who provides digital services to the White House? That’s right, AWS, Amazon Web Services. You may have heard of them. If not, you shall.
On Monday AMZN was smacked around by a report from the Washington Post, the paper owned by AMZN founder Jeff Bezos. AMZN subsequently suffered one of the worst days in the market in the company’s twenty-plus year lifespan. Amazon is said to be the target of a pending anti-trust investigation, just like Alphabet(GOOG, GOOGL), and FacePlant(FB). The following share price spasms yanked shares down more than 4%. On Tuesday shares recovered 2% of that loss. That’s one day.
long as tariffs and trade disputes remain, this market will be turbulent. Troubled markets create nervous investors. Nervous investors move to capital preservation. Cash moves to the sidelines. High multiple momentum stocks crash. Think Information Technology. Think Amazon on Monday.
The story is more complex however. Secular growth can thrive in the early stages of many price pull-backs. OKTA’s 6.5% move last week on earnings for example. ROKU has exploded 38% over the last twenty trading days.
Over the very same time period Apple has tanked 16.5%, while yet up 10.2% on the year. Out of the 22 high-profile tech stocks Sj currently tracks 9 are down 10% or more, most far more, over the past 20 sessions. The IT sector has lost 8.93% over the same period, ranking 10th of all sectors. Only Real Estate and Materials are positive, 2.39% and 0.55%. So where does this leave the Death Star?
sells for a 1.75 PEG, a 63.6 forward price-to-earnings multiple. It now sells for a historical 75.3 P/E average over the last four quarters. So is that expensive? The S&P now sells for a 19.6 4Q average, and a 26.9 forward. So what’s expensive?
AMZN is 2x more expensive then the S&P on cash flow, and 75% more costly on sales. That means investors are paying a 75% premium for Amazon shares, over the S&P average, based on sales made. That bears repeating. We the investors are paying up for AMZN–$1.75 for the very same sales others receive for $1.00, when. That’s expensive–right?
Some times you get what you actually pay for. Mercedes would tell you that. We’ll tell you so as well. The S&P represents average. AMZN doesn’t. Amazon grows sales at triple the rate of average–oops, the S&P, and greater than twice that of average over three years.
In Q1 twelve month operating cash flow expanded 89%y/y to 34.4 billion. Net sales increased 17%, 19% without FX, to 59.7 billion for the quarter. Operating income increased to 4.4 billion from 1.9 in the year ago quarter, or 131.5%. Net income increased to 3.6 billion from 1.6 billion one year ago. That’s 125%.
The Q1 Call
On the Q1 call CFO Brian Olsavsky was asked about the slower “unit growth of 10%.” He explained “that excludes our fastest growing businesses such as ads, AWS(Amazon Web Services), Whole Foods, and others.” Commenting on restrictive legislation in India he referred to the protectionist move “despite that PN2 ruling we’re very happy with the progress in India.”
“Q1 brought less fulfillment capacity build out, and infrastructure spend. Q2 takes those back up once again.” In particular the company is putting “$800 million spend toward free one day delivery, vs. the traditional two. We’re taking a significant step.” Q2 spend will also reflect “that quarter’s traditional Q2 spend up in stock-based compensation.”
Again referring to the move to one day free Prime delivery Olsavsky commented “We’re building for 100 million SKUs, and the program will be global. You’ll see that growth in spend almost immediately.”
The CFO further commented that “Prime engagement is all growing in the right direction–on all fronts,” meaning memberships, Prime video, music, etc. When questioned concerning a slowing in their ad business Olsavsky said “We’re focused on driving relevancy, adding more functionality, additional tools, along with better recommendations. When we focus on the input the results will come.”
In reference to Whole Foods Market we hear that “Prime benefits there include discounts, delivery and store pick-up, and we’ve now implemented three rounds of price cuts since the summer of ’17.”
Further we hear about 3rd party sellers “kicking our butt,” a reference to a Bezos comment. Olsavsky states “Our position is that we’re indifferent to who’s selling more. We’re invested in our sellers and we build infrastructure, offer tools, and services for sellers. All sales create more options, and more benefits for Prime Members.”
Olsavsky then stopped analysts questions to announces that “AWS revenue has now topped $30 billion. We’ve undertaken a very large expansion of our teams, with Volkswagen, Ford, and Lyft as customers.”
absolutely rocked EPS by 273% over the past year, vs. a 16% average for the S&P. That’s out-performance right? Over the past three years AMZN has exceeded the S&P EPS growth rate by a factor of five, 5x, totaling 151.3% EPS growth. Their one year EPS estimates is 35.6%, or 2x the benchmark 16.4%. And 3-5y estimates have AMZN returning 42% earnings growth vs. 14% for the S&P. Keep in mind AMZN is now an $888,000,000.00 company. AAPL is at 874b.
On Christmas Eve the coal-bearing market brought Amazon a macro-generated 52wk low of $1307. Where do you think the Claus gets his stuff? On September 4th Amazon set it’s own fundamentals-driven 52wk high of $2050.50. $2300 is Morningstar’s current “Fair Value Estimate.” They are not alone. CFRA sets said at $2200.
As a most revealing metric of managerial effectiveness, Warren Buffet prefers the ROE, or “return on equity.” Amazon excels here as well. The company returns 29.7% on its’ equity, nearly doubling its’ benchmarks return of 16.2%.
On April 25th AMZN reported Q1 results. Bezos and company casually dropped their book report on the teacher’s desk and strolled out, thus allowing the vultures to swarm about the facts. AMZN reported EPS of $7.09 vs. a consensus estimate of $4.71. That represents an EPS beat of 50.29%. That $7.09sh. comes against a $3.27 EPS from a year ago, which was then a 161.31% quarterly beat.
can open up the valve on their earnings fire hose any time they choose. But full-bore unfettered expansion is their game. Take share now and dominate both now and later. Is anyone blind enough to deny the obvious success of their plan?
No where else on Earth is there a retailer positioned to push AMZN off course. Wal-Mart? Um hum–not really. While Amazon grows Wal-Mart yet attempts to create an online/off-line model that works. Yes, WMT’s last quarter displayed a fabulous online growth of 30% or 40%. Yet Target(TGT) seems far closer to achieving that magical on/off revenue-driving mix.
Meanwhile AMZN continues growing revenue at a five year annualized rate over 25%, and cash flow of 44.3%. Again, this is revenue and cash flow growth for a $888 billion dollar company.
Whole Foods Market
off Emanuel Cleaver Boulevard and the Plaza in Kansas City, sits UMKC. On campus resides perhaps the most stunning palace of food anywhere. No surprise it’s a Whole Foods. Sj reached out, again, and thanks to the extra efforts of Dr. Sabine Feline we have photos. Many will remember the Doctor from our piece “Cord Cutter. Eclipse of Power.” The Doctor demonstrated how to adroitly deal with, and then completely ditch, the filthy Pirates of Coax.
Late last year Amazon acquired this Whole Foods, along with all the others. Ditch the grocery store grid and that wide open warehouse configuration. This store can only be described as “experiential retail.” Park in their private parking structure, the one with wall sconces.
As part of the campus it sits blocks from the superb Nelson-Atkins Museum of Art. No thought has gone unconsidered in it’s design, while presentation is enthralling. The shop in a shop concept is central; fresh pizza shop, sit-down coffee shop/bar, massive sparkling salad bar/prepared foods section, mezzanine dining offering broad exterior views.
Business is non-stop yet easy. The design is enveloping and intimate, and exploratory. Choices are seemingly endless and expertly enticing. It resembles nothing else in the business. Amazon didn’t build it, but they were savvy enough to buy it. Whole Foods Market was once known as “Whole paycheck.” Now it’s cheaper and tangible, an experiential, immersive, part of the sparkling Amazon brand.
-Amazon Investor Relations-
Q1 Earnings Press Release
The Investing Journey
Thanks for Reading.