Amazon

the FAANG stocks have been taking it on the chin, especially FB and AMZN. Interestingly, AAPL and MSFT have held up reasonably well in comparison. My question is, isthere any price at which Amazon becomes interesting to value investors?

I don’t think we are there yet, but over the last 5 years the company has settled into a pattern of some reasonably predictable metrics that might make estimating future value possible in ways it hasn’t been through its long growth curve. For example, since 2018 net margins have come in around the 4.5% range fairly consistently and seem to be inching up incrementally from there. Sales growth has averaged around 18% since then, with VL predicting that 18% trend to continue. If Amazon continues to grow at 15-20% per year for the next decade they will generate $2-3 trillion in sales by 2032. That would mean that Amazon alone would count for 5-8% of the entire USA GDP! It currently accounts for about 2% of the USA GDP. I don’t think they can dominate the economy like that, but there is room to grow globally as well, so sales in the $2-3 trillion range a decade from now is not outside the realm of possibility.

If we assume that they can grow sales for another decade at 15%, and that 5% net margins are sustainable, we are looking at close to $100 billion in profits in a decade. If they continue to dilute shareholders at 1% per year, the future eps will be ~ $175/sh. If we assign a range of PE from 20-40 to these future earnings and discount to the present we get 10 year returns ranging from 5% to 12%.

I think if the shares retreat another 30% to ~$1500 that Amazon might be worth serious consideration. Of course, even this bargain price has a lot of future growth baked into it.

Thoughts?

PP

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Model out AWS growth and profitability. It is an entrenched monster. Very similar lock in with clients like the old IBM mainframe.

Hybrid is overhyped. One cloud provider typically gets the lion share of a client’s business.

I don’t think AWS will be spun out unless forced by regulators.

Jassy should have remained head of AWS. That is his baby. Unsure if he will be a great CEO.

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Hybrid is overhyped. One cloud provider typically gets the lion share of a client’s business.
I could be wrong, but I thought hybrid referred to storage onsite and in the cloud, not storage with two competing cloud providers. I think hybrid is what IBM was pushing since they had so much on-site mainframe business.

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“I think hybrid is what IBM was pushing since they had so much on-site mainframe business.”

I was a top 100 senior leader at IBM. Retired about 3 years ago. Public cloud is killing IBM’s business slowly but steadily. This was discussed at the most senior level meetings.

AWS is the clear leader and Microsoft is a solid 2nd. Google is a distant 3rd but has hope with AI.

Almost all new development at large enterprises is designed to be deployed in the public cloud. Private clouds are just not competitive with the Hyperscalers.

IBM hypes hybrid due to dropping $36 billion on Red Hat and trying to slow the migration off the mainframe. Just look at their cloud growth rates vs. the Hyperscalers. Game over.

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I was a top 100 senior leader at IBM. Retired about 3 years ago. Public cloud is killing IBM’s business slowly but steadily. This was discussed at the most senior level meetings.

Reminds me of what happened to Xerox, Polaroid, Eastman-Kodak, (add your favorites here) …
They all (except maybe Xerox) saw what was happening, even had capital, but did not know what to do about it.

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I could be wrong, but I thought hybrid referred to storage onsite and in the cloud, not storage with two competing cloud providers.

Nope. Hybrid is, using a mixture of On-prem compute and cloud compute to meet the needs of an organization. There are many enterprises moving to completely cloud or at least have “cloud first” strategy. Now, Hybrid talks about find the right model for your workload.

Reminds me of what happened to Xerox, Polaroid, Eastman-Kodak, (add your favorites here)…
They all (except maybe Xerox) saw what was happening, even had capital, but did not know what to do about it.

I have a kodak-branded digital camera around here somewhere, so somebody in Kodak tried.

Bringing this back to on-topic for the board, this is actually one of the best parts of the Berkshire Hathaway structure. Capital moves freely to businesses without opportunity to those with opportunity.

<< AWS is the clear leader and Microsoft is a solid 2nd. Google is a distant 3rd but has hope with AI. >>

Not anymore.

Alibaba Cloud’s market share reached 9.5%, ranking third in the world
and first in Asia-Pacific, surpassing Google Cloud Platform’s 6.1%,
according to data recently released by research firm Gartner.

https://cntechpost.com/2021/04/21/alibaba-cloud-market-share…

-Rubic

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Yes great point. The Chinese are formidable and coming on strong.

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I will not be worried about Chinese. Western enterprises will use Alibaba because they are forced to use them in China. Outside of China they will not use Alibaba.

Between AMZN, and Apple, I think AMZN is a better buy here. Unfortunately I have so much Amazon…

Retired about 3 years ago

Arvind (new CEO) doing well with the new strategy. Hybrid seems to be working and revenue is now rising again with Redhat on all cloud platforms.

This downturn gives IBM an opportunity to do a slew of acquisitions.

This downturn gives IBM an opportunity to do a slew of acquisitions.

They have $46 Billion debt. There stock is something nobody wants. How are they going to do acquisitions? Separately, did you see the moves in some of the names, SHOP up $100 in 2 days, Docu…

“Arvind (new CEO) doing well with the new strategy”

he ain’t no Staya!

won’t say anymore, I know too much

Elon Musk has a different view about China:

https://www.yahoo.com/finance/news/elon-musk-thinks-american…

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Elon’s views are mostly self serving in this matter. When your workers sleeps in factory floor and works 70, 80 hours a week, as a CEO he loves it. I am pretty sure, if he gets treated same way as Jack Ma, he will still be praising China.

A choice to adopt Ali cloud for enterprise is not just economics, but also about their political, regulatory, and justice framework. If you put your data in Ali cloud, do you have any guarantee that data will not be shared with Chinese government?

We have Apple CEO refusing to break the phone of Felon’s and criminals for FBI. Cheap labor doesn’t necessarily translate into technology talent, and even if it does, some technological advantages doesn’t translate into advantage for the country.

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