AMZN - My Mid-Quarter Review

AMZN - My Mid Quarter Review

Who is amazon? was founded in 1994 and is headquartered in Seattle. I remember during the dot-com bubble when it was welling at 200 times sales or something, and Bezos kept saying, “Our stock is way overvalued. We’re just a retail bookstore after all.” No longer! Amazon now engages in the retail sale of all kinds of consumer products in North America and internationally. It is by far the dominant Internet retailer. There is no one even close. It operates through North America, International, and Amazon Web Services (AWS) segments.

The company sells merchandise and content purchased for resale from vendors, as well as those offered by third-party sellers through retail Websites.

It also manufactures and sells electronic devices, including kindle e-readers, fire tablets, fire TVs, and echo, as well as fire phones;

It provides Kindle Direct Publishing, an online platform that allows independent authors and publishers to make their books available in the Kindle Store.

In addition, the company offers programs that enable sellers to sell their products on its Websites, as well as their own branded Websites;

And programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content.

Further, it offers computing, storage, database, and other cloud-based services.

It also offers fulfillment, publishing, digital content subscriptions, advertising, and co-branded credit card agreements services. Additionally, the company offers Amazon Prime, an annual membership program, which provides free shipping of various items; access to unlimited streaming of movies and TV episodes; and other services. It serves consumers, sellers, developers, enterprises, and content creators.

What is your history with them?
I was a stockholder during the dot-com craze, but fortunately exited in early 2000, before the bubble burst. For a long time I wouldn’t invest in them again because they weren’t making a profit and kept reinvesting everything. I started again in Oct 2015, and have been toying with a position ever since. I currently have a small position, but hopefully will gradually add to it.

Why are you taking a position? They still hardly have any profits.
Well they started making money, if you’ll accept growing Free Cash Flow as making money. So I decided to take a small position. Here’s what I’m basing it on:

2013:  16.1  15.7  17.1  25.6  =   74.5    	(up 22%)
2014:  19.7  19.3  20.6  29.3  =   88.9    	(up 19%)
2015:  22.7  23.2  25.4  35.7  =  107.0         (up 20%)

**Trailing 12-Month** (TTM) **Operating Cash Flow**
2013:  4.25  4.50  5.00    5.50    		(up 31% over 2012)
2014:  5.35  5.30  5.70    6.80 		(up 24% over 2013)
2015:  7.80  9.00  9.80  11.90		        (up 75% over 2014)

Note that Operating Cash Flow has taken off in the last five quarters (from 5.70 to 6.80 to 7.80 to 9.00 to 9.8 to 11.9), and was up 75% in 2015.

Their Op Cash Flow per share has gone from $11.87 to $14.16 to $16.23 to $18.40 to $20.04 to its current value of $24.74 per share!!! (That gives them an Op Cash Flow PE equivalent of 21.6. I am well aware that that’s not the same thing as earnings, but it’s sure nice, and growing very fast.)

**Trailing 12-Month** (TTM) **Free Cash Flow**
2013:  0.20  0.30  0.40  2.00    		(up 400% from 0.40% in 2012)
2014:  1.50  1.00  1.10  1.95 		(down 2.5% from 2013)
2015:  3.20  4.40  5.40  7.30		(up 274% from 2014) 

Note that Free Cash Flow was affected by large capital expenditures (buying new headquarters or something) in the first three quarters of 2013, then stalled out in the first two quarters of 2014 (actually fell from 2.00 to 1.50 to 1.00, but has exploded in the past five quarters from 1.10 to 1.95 to 3.20 to 4.40 to 5.40 to 7.30, and was up 274% in 2015

Isn’t buying over the Internet a fad? Won’t people buy mostly books? Don’t people like seeing other things that they buy in person? In stores?
Here’s what I’ve bought from amazon recently:
Hefty Steelsack trashbags
Bob’s Red Mill hot cereal
RoC skin products for my wife
A set of dominos
Gillette razor blades
Working Hands hand cream
Pilot rolling-ball pens
Maybelline products
Citracal tablets
two Hamilton Beech air purifiers
extra filters for them
many kindle books
tee shirts
Hanes underpants
Printer cartridges
Snow goggles
a couple of DVD’s
and, oh yes, a couple of paper books

And remember Amazon Web Services (AWS) is much smaller in revenue than the rest of their business, but was growing at 80% last time I looked and had a margin of 20% compared to 5% for the retail business. Nice side business, don’t you think?

And amazon is expanding into internet of things, drone deliveries, and anything else you can imagine connected to the web.

How about competition?
They are completely dominant. They don’t really have any competition. Macy’s and Walmart are closing stores and laying off workers. Sure they are trying to sell over the Internet too, but they don’t have a chance. Why would I look in five different places for an item when I know that amazon will have it, probably cheaper, and certainly faster delivery.

Well, if they are so dominant, how can they keep growing?
Because all of Internet sales still make up only a small percentage of all retail sales.

How has AMZN stock been doing?
They were about $300 in Jan 2015. They got as high as $690 at the end of December. They are now down to $535.

To summarize: Here’s a company that totally dominates Internet retail, that is growing revenue at 20%, that is growing Op Cash Flow and Free Cash Flow at explosive rates, but that doesn’t show much bottom line earnings because it plows back most of those earnings into the business. They are down 22.5% from their high. I’m aware that this is not a typical stock for me, and some on the board won’t approve of it, but it’s a very small position for me (my smallest at present).


For Knowledgebase for this board
please go to Post #15056.

A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board


Note also that trailing capital expenditures for the past seven quarters have been pretty stable at 4.30, 4.60, 4.85, 4.60, 4.60, 4.40, 4.60 (I’m subtracting FCF from OCF to get them). This gives a lot of leverage in FCF as OCF grows.

For example:
In June 2014, 5.30 minus capex of 4.30 left just 1.00 in FCF, while…
In this last quarter, 11.90 minus a similar 4.60 in capex, left 7.30 in FCF.

Thus, this year, as you saw, a 75% increase in OCF gave a 274% increase in FCF, without any slight of hand or magic bookkeeping.



Hanes underpants

Now we didn’t need to know that. :slight_smile:


Thus, this year, as you saw, a 75% increase in OCF gave a 274% increase in FCF, without any slight of hand or magic bookkeeping.

Are you sure about that?
Apparently Amazon uses capital leases of short-lived equipment such as servers etc. to pretend that a substantial chunk of its operating costs are investments.……


Are you sure about that? Apparently Amazon uses capital leases of short-lived equipment such as servers etc. to pretend that a substantial chunk of its operating costs are investments.

Hi Devil’s Advocate,
I wouldn’t believe all those articles that say AMZN is actually burning through cash. Just 10 days ago their board authorized a $5 billion stock buy-back. Boards of companies that are burning through cash don’t authorize $5 billion buy-backs! (It would be a breech of fiduciary responsibility, etc). You may not like their bookkeeping but maybe you should take another look.

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Devil’s Adv. is correct.

Please go through the below thread and read through mungo’s posts regarding Amazon not being very transparent about their Capital leases.…

There are many other posts about AMZN’s capital leases too on the same board.

Anil S.


Agreed about Pilot roller ball pens. I use the G-TEC-C4 ultra fine 0.4. It is best not to buy too many at a time as I have found the ink-flow can become erratic if they wait too long. I like to record basic book-keeping by hand (this antiquated idea will be irrelevant to the young!). These pens are very neat and I am always concerned they might stop making them which is why I am placing this advertisement for free, however, if Pilot HQ in Japan would care to offer me a small emolument…

I like the Uniball roller pens. Smooth writing and the ink inbeds itself in checks so checks can’t be blanked out and rewritten. For those of us that still use checks.