Was Apple selling for a hundred times earnings? If anyone paid that, they weren't smart...they were lucky. Because it would have been impossible to know that the iPhone and iPad would be created and take over the world.
In any case, Amazon's business model does not lend itself to some sudden miraculous new stream of earnings. And it's growth rate absolutely does not justify such a high multiple.
And anyone saying that the valuation makes sense just because that's what "the market" says, go back and look at what happened with many stocks during the Internet Bubble. I rest my case.
The PE for AAPL was over 200 in 2001-02 and didn't decline below 100 until 2004. So as in investor during this timeframe, you could take that high valuation two ways. Either the company is being highly overvalued by investors who will get burned, or investors have rightly anticipated the beginnings of a huge growth story. So before you call it luck, consider which scenario turned out to be the correct one.
I don't necessarily disagree with you on AMZN and as I said this is not a bet I am going to make. But others will feel differently just as others did about AAPL, and they most certainly lost out. That's all in the nature of markets.
So your case is hardly rested, it's constantly being tested.
Quote:
Originally Posted by anantksundaram
What did it have to do with? Cooking?
Nice reply. Stock markets can't be called "finance," any more than a casino can be called a bank. If you are expecting rationality from markets you are looking in the wrong place.
"Justified" isn't the right word, but I think the sentiment is that the market will self-correct because, as you say, it is whatever the market says. The market can inflate or deflate something for a short-term, but over the long haul it will reach a point of equilibrium.
I don't know that I'd called it equilibrium. That word suggests that some sort of final or at least stabile balance will be achieved in the markets. The markets are all about everyone trying out outguess everyone else about what the future will look like. You're not going to get to much equilibrium that way.
Nice reply. Stock markets can't be called "finance," any more than a casino can be called a bank. If you are expecting rationality from markets you are looking in the wrong place.
From this day forward do not go to Google Finance for stock quotes. Please go to Google Disco.
This sell for loss, recoup later model works if there is some sort of contractual obligation on the users to consume services from Amazon. Or if the device is pointless without Amazon services.
In this case, the Kindle Fire is a perfectly fine tablet (or maybe I should say a fine low end tablet!), even without Amazon services. So there is a strong incentive to buy this cheap tablet and not consume any content from Amazon!
In such a scenario, how will Amazon recover its losses? For instance, the Kindle Fire is sold in India for Rs 13,000. Or about $260. This extra $60 is the scalpers margin - and does not go to Amazon. Amazon does not even sell content in India. So on all the devices bought in India, Amazon would be just writing off its losses. I am sure the situation in China would be an order of magnitude worse for Amazon.
It really does not matter how many tablets Amazon sells, if these tablets end up in India and China! They will never get the ecosystem kicker they are hoping for.
It is for this reason that Amazon's actions are really a major positive for Apple. All Amazon will achieve, is destroying the market for Android tablets, bifurcating the ecosystem, etc. And lose lots of money in the process! Samsung and Motorola will be losing more because of Amazon - and Apple will actually benefit in long run.
More than Oracle, more than Apple, it is Amazon that will really destroy Android.
amazon sells tablets
more people use the apps from amazon app store
amazon attracts more developers
developers use Amazon's cloud services to host content and data for their apps and pay amazon
Dont confuse revenue with profit. If you turn the statement into a profit comparison then lets compare low long it would take Apple to lose as much money as Amazon lost last quarter?
The Kindle Fire is the exact opposite. They're selling the expensive item at a loss in the HOPES that they'll sell enough media to make up for it. There are several problems with that:
1. The loss is very large and the media is cheap. Amazon's average net is about 1% of sales. You need to sell 500 $10 books to make up a $50 loss. Or 500 $0.99 games if the loss is only $5 per unit. Since Amazon is not talking about ANY of those numbers, it's impossible to say how much they lose or how many books/videos/apps they sell per Kindle and it is therefore impossible to say whether they have any hope of recovering the losses.
The flaw in your logic is Amazon sells much more than media. They want to be the one stop shop for everything you buy. Even if they never make up the loss selling media, they are still up if you become a loyal Amazon customer and buy other goods from them.
Think Halo effect. It worked for Apple. Positive experiences with the iPod led to higher sales of Macs.
The flaw in your logic is Amazon sells much more than media. They want to be the one stop shop for everything you buy. Even if they never make up the loss selling media, they are still up if you become a loyal Amazon customer and buy other goods from them.
Think Halo effect. It worked for Apple. Positive experiences with the iPod led to higher sales of Macs.
Well then, Amazon had better make sure that people have a positive experience or that will become the flaw in your logic.
The flaw in your logic is Amazon sells much more than media. They want to be the one stop shop for everything you buy. Even if they never make up the loss selling media, they are still up if you become a loyal Amazon customer and buy other goods from them.
Think Halo effect. It worked for Apple. Positive experiences with the iPod led to higher sales of Macs.
That's true. It doesn't change anything I said, though.
Since Amazon doesn't release any information, there's no way of knowing whether they get enough incremental sales from each Kindle Fire to justify taking a loss. It's harder to make money when you start out with a loss than when you sell your product at a profitable price.
I also suspect that the halo effect is going to be all that great. People already know what shopping with Amazon is like. The number of people who become Amazon shoppers (or who significantly increase their Amazon purchases) because of the Fire is not likely to be very large.
It also requires that the experience be positive. So far, Fire reviews are mediocre.
Some of us predicted this (and take no joy in it).
This is just getting started. They'll probably have to pull or scale back Fire at some point.
Perhaps they do. Or the Amazon story may turn out (somewhat) like the carriers, who take an initial hit by paying Apple the iPhone subsidy but should make up for it with subscription fees. Amazon's version of subscription fees is content sales, which has no time limit. This still might work. For sure, Amazon's accountants has worked out myriad possible scenarios before they made this gamble.
Perhaps they do. Or the Amazon story may turn out (somewhat) like the carriers, who take an initial hit by paying Apple the iPhone subsidy but should make up for it with subscription fees. Amazon's version of subscription fees is content sales, which has no time limit. This still might work. For sure, Amazon's accountants has worked out myriad possible scenarios before they made this gamble.
Probably, but I sure hope they didn't leave it in the hands of the accountants. There are too many assumptions - and the accountants are not equipped to evaluate them.
1. Loss per Kindle. With appropriate input from Manufacturing, the accountants can do this.
2. How many Kindle Fires will be sold? Pure guesswork - and requires their best, least biased people to make this assessment. Note, however, that almost everyone has overestimated how many units their "iPad killer" would sell.
3. How much media or other products Kindle Fire buyers will buy. More importantly, how much more they'll buy than if they didn't have a Kindle Fire. For example, if someone buys 10 books for their Kindle Fire, but if they would have bought the same 10 books for their iPad if they didn't have a Fire, there's no incremental income. Again, needs their best market analysis, not accountants.
4. Time value of money. How much revenue do they need over a 2 year period to make up for a certain loss today? The accountants can do the math, but they're not equipped to make the big decisions.
The fundamental problem with the Fire program is that it was purely a leap of faith. Even the best marketing people would only be guessing on items #2 and #3 above. They invested many millions of dollars in hopes that their marketing people were right. It's far too early to know if it will pay off (even if Amazon DID release data).
Thank you, Amazon. I was pretty confident that this was going to happen, so I bought a bunch of puts at 6.85 a couple of weeks ago. I just sold them at 13.8. Doubled my money in 2 weeks.
Probably, but I sure hope they didn't leave it in the hands of the accountants. There are too many assumptions - and the accountants are not equipped to evaluate them.
1. Loss per Kindle. With appropriate input from Manufacturing, the accountants can do this.
2. How many Kindle Fires will be sold? Pure guesswork - and requires their best, least biased people to make this assessment. Note, however, that almost everyone has overestimated how many units their "iPad killer" would sell.
3. How much media or other products Kindle Fire buyers will buy. More importantly, how much more they'll buy than if they didn't have a Kindle Fire. For example, if someone buys 10 books for their Kindle Fire, but if they would have bought the same 10 books for their iPad if they didn't have a Fire, there's no incremental income. Again, needs their best market analysis, not accountants.
4. Time value of money. How much revenue do they need over a 2 year period to make up for a certain loss today? The accountants can do the math, but they're not equipped to make the big decisions.
The fundamental problem with the Fire program is that it was purely a leap of faith. Even the best marketing people would only be guessing on items #2 and #3 above. They invested many millions of dollars in hopes that their marketing people were right. It's far too early to know if it will pay off (even if Amazon DID release data).
You're right - I misspoke, or miswrote. Accountants would be engaged too, but they won't be the key people.
I think your 4 factors cover the essential ones the accountants likely considered (other factors are in the hands of marketing folks and engineers, I imagine). And I further agree that it's far too early to know if there will be a payoff. But I disagree (and strong at that) that this program is a pure leap of faith. It is a calculated risk, one (possibly) modelled after the carrier programs and also, to an extent, Amazon's own history. Not that long ago, Amazon was given up for dead. Even now, having convinced many on Wall St. that his business model worked, Bezos remains a true entrepreneur and long-term thinker. It is in the Amazon staff handbook to "think big", which is different from leap of faith. And Bezos seems to believe in it 100%. For that, he is admirable in my books. I hope he succeeds.
Perhaps they do. Or the Amazon story may turn out (somewhat) like the carriers, who take an initial hit by paying Apple the iPhone subsidy but should make up for it with subscription fees. Amazon's version of subscription fees is content sales, which has no time limit. This still might work. For sure, Amazon's accountants has worked out myriad possible scenarios before they made this gamble.
Further, if markets are 'irrational', what are you doing there?
Balderdash. In these stock threads we are constantly seeing people post about how a stock "should" be worth this or that, and how they can't understand why it's not worth more or less than the current price. They are expecting the markets to follow some sort of clear set of rules with predicable outcomes. In fact the markets are a function of mass behavior, which is inherently emotional, not rational. I presume you've heard about the classic polar driving forces behind the markets: fear and greed. Good luck rationalizing ether one. If you ever could, you'd be the first. Your Nobel Prize awaits.
I am in the market because I don't worry about its inherent irrationality. Maybe the difference between you and I is, I don't try to pretend that it is rational.
Quote:
Originally Posted by anantksundaram
People are only doing to you what you often do unto others.
Comments
Was Apple selling for a hundred times earnings? If anyone paid that, they weren't smart...they were lucky. Because it would have been impossible to know that the iPhone and iPad would be created and take over the world.
In any case, Amazon's business model does not lend itself to some sudden miraculous new stream of earnings. And it's growth rate absolutely does not justify such a high multiple.
And anyone saying that the valuation makes sense just because that's what "the market" says, go back and look at what happened with many stocks during the Internet Bubble. I rest my case.
The PE for AAPL was over 200 in 2001-02 and didn't decline below 100 until 2004. So as in investor during this timeframe, you could take that high valuation two ways. Either the company is being highly overvalued by investors who will get burned, or investors have rightly anticipated the beginnings of a huge growth story. So before you call it luck, consider which scenario turned out to be the correct one.
I don't necessarily disagree with you on AMZN and as I said this is not a bet I am going to make. But others will feel differently just as others did about AAPL, and they most certainly lost out. That's all in the nature of markets.
So your case is hardly rested, it's constantly being tested.
What did it have to do with? Cooking?
Nice reply. Stock markets can't be called "finance," any more than a casino can be called a bank. If you are expecting rationality from markets you are looking in the wrong place.
"Justified" isn't the right word, but I think the sentiment is that the market will self-correct because, as you say, it is whatever the market says. The market can inflate or deflate something for a short-term, but over the long haul it will reach a point of equilibrium.
I don't know that I'd called it equilibrium. That word suggests that some sort of final or at least stabile balance will be achieved in the markets. The markets are all about everyone trying out outguess everyone else about what the future will look like. You're not going to get to much equilibrium that way.
Nice reply. Stock markets can't be called "finance," any more than a casino can be called a bank. If you are expecting rationality from markets you are looking in the wrong place.
From this day forward do not go to Google Finance for stock quotes. Please go to Google Disco.
From this day forward do not go to Google Finance for stock quotes. Please go to Google Disco.
I can see the trend is towards meaningless smartass responses. I will keep this in mind the next time you demand answers from me.
... for one simple reason.
This sell for loss, recoup later model works if there is some sort of contractual obligation on the users to consume services from Amazon. Or if the device is pointless without Amazon services.
In this case, the Kindle Fire is a perfectly fine tablet (or maybe I should say a fine low end tablet!), even without Amazon services. So there is a strong incentive to buy this cheap tablet and not consume any content from Amazon!
In such a scenario, how will Amazon recover its losses? For instance, the Kindle Fire is sold in India for Rs 13,000. Or about $260. This extra $60 is the scalpers margin - and does not go to Amazon. Amazon does not even sell content in India. So on all the devices bought in India, Amazon would be just writing off its losses. I am sure the situation in China would be an order of magnitude worse for Amazon.
It really does not matter how many tablets Amazon sells, if these tablets end up in India and China! They will never get the ecosystem kicker they are hoping for.
It is for this reason that Amazon's actions are really a major positive for Apple. All Amazon will achieve, is destroying the market for Android tablets, bifurcating the ecosystem, etc. And lose lots of money in the process! Samsung and Motorola will be losing more because of Amazon - and Apple will actually benefit in long run.
More than Oracle, more than Apple, it is Amazon that will really destroy Android.
amazon sells tablets
more people use the apps from amazon app store
amazon attracts more developers
developers use Amazon's cloud services to host content and data for their apps and pay amazon
I can see the trend is towards meaningless smartass responses. I will keep this in mind the next time you demand answers from me.
It was joke. c'mon, lighten up. I honestly didn't mean to offend you.
Dont confuse revenue with profit. If you turn the statement into a profit comparison then lets compare low long it would take Apple to lose as much money as Amazon lost last quarter?
That's profit vs profit comparison.
The Kindle Fire is the exact opposite. They're selling the expensive item at a loss in the HOPES that they'll sell enough media to make up for it. There are several problems with that:
1. The loss is very large and the media is cheap. Amazon's average net is about 1% of sales. You need to sell 500 $10 books to make up a $50 loss. Or 500 $0.99 games if the loss is only $5 per unit. Since Amazon is not talking about ANY of those numbers, it's impossible to say how much they lose or how many books/videos/apps they sell per Kindle and it is therefore impossible to say whether they have any hope of recovering the losses.
The flaw in your logic is Amazon sells much more than media. They want to be the one stop shop for everything you buy. Even if they never make up the loss selling media, they are still up if you become a loyal Amazon customer and buy other goods from them.
Think Halo effect. It worked for Apple. Positive experiences with the iPod led to higher sales of Macs.
It was joke. c'mon, lighten up. I honestly didn't mean to offend you.
Okay, okay. Hard to tell sometimes.
The flaw in your logic is Amazon sells much more than media. They want to be the one stop shop for everything you buy. Even if they never make up the loss selling media, they are still up if you become a loyal Amazon customer and buy other goods from them.
Think Halo effect. It worked for Apple. Positive experiences with the iPod led to higher sales of Macs.
Well then, Amazon had better make sure that people have a positive experience or that will become the flaw in your logic.
The flaw in your logic is Amazon sells much more than media. They want to be the one stop shop for everything you buy. Even if they never make up the loss selling media, they are still up if you become a loyal Amazon customer and buy other goods from them.
Think Halo effect. It worked for Apple. Positive experiences with the iPod led to higher sales of Macs.
That's true. It doesn't change anything I said, though.
Since Amazon doesn't release any information, there's no way of knowing whether they get enough incremental sales from each Kindle Fire to justify taking a loss. It's harder to make money when you start out with a loss than when you sell your product at a profitable price.
I also suspect that the halo effect is going to be all that great. People already know what shopping with Amazon is like. The number of people who become Amazon shoppers (or who significantly increase their Amazon purchases) because of the Fire is not likely to be very large.
It also requires that the experience be positive. So far, Fire reviews are mediocre.
Some of us predicted this (and take no joy in it).
This is just getting started. They'll probably have to pull or scale back Fire at some point.
Perhaps they do. Or the Amazon story may turn out (somewhat) like the carriers, who take an initial hit by paying Apple the iPhone subsidy but should make up for it with subscription fees. Amazon's version of subscription fees is content sales, which has no time limit. This still might work. For sure, Amazon's accountants has worked out myriad possible scenarios before they made this gamble.
except that the fire is not an android tablet. Although, now, i don't think there is a market for android tablets.
false
Perhaps they do. Or the Amazon story may turn out (somewhat) like the carriers, who take an initial hit by paying Apple the iPhone subsidy but should make up for it with subscription fees. Amazon's version of subscription fees is content sales, which has no time limit. This still might work. For sure, Amazon's accountants has worked out myriad possible scenarios before they made this gamble.
Probably, but I sure hope they didn't leave it in the hands of the accountants. There are too many assumptions - and the accountants are not equipped to evaluate them.
1. Loss per Kindle. With appropriate input from Manufacturing, the accountants can do this.
2. How many Kindle Fires will be sold? Pure guesswork - and requires their best, least biased people to make this assessment. Note, however, that almost everyone has overestimated how many units their "iPad killer" would sell.
3. How much media or other products Kindle Fire buyers will buy. More importantly, how much more they'll buy than if they didn't have a Kindle Fire. For example, if someone buys 10 books for their Kindle Fire, but if they would have bought the same 10 books for their iPad if they didn't have a Fire, there's no incremental income. Again, needs their best market analysis, not accountants.
4. Time value of money. How much revenue do they need over a 2 year period to make up for a certain loss today? The accountants can do the math, but they're not equipped to make the big decisions.
The fundamental problem with the Fire program is that it was purely a leap of faith. Even the best marketing people would only be guessing on items #2 and #3 above. They invested many millions of dollars in hopes that their marketing people were right. It's far too early to know if it will pay off (even if Amazon DID release data).
Thank you, Amazon. I was pretty confident that this was going to happen, so I bought a bunch of puts at 6.85 a couple of weeks ago. I just sold them at 13.8. Doubled my money in 2 weeks.
Sweet.
Nice! Should have thought of that....
If you are expecting rationality from markets you are looking in the wrong place.
I couldn't disagree more.
Further, if markets are 'irrational', what are you doing there?
Probably, but I sure hope they didn't leave it in the hands of the accountants. There are too many assumptions - and the accountants are not equipped to evaluate them.
1. Loss per Kindle. With appropriate input from Manufacturing, the accountants can do this.
2. How many Kindle Fires will be sold? Pure guesswork - and requires their best, least biased people to make this assessment. Note, however, that almost everyone has overestimated how many units their "iPad killer" would sell.
3. How much media or other products Kindle Fire buyers will buy. More importantly, how much more they'll buy than if they didn't have a Kindle Fire. For example, if someone buys 10 books for their Kindle Fire, but if they would have bought the same 10 books for their iPad if they didn't have a Fire, there's no incremental income. Again, needs their best market analysis, not accountants.
4. Time value of money. How much revenue do they need over a 2 year period to make up for a certain loss today? The accountants can do the math, but they're not equipped to make the big decisions.
The fundamental problem with the Fire program is that it was purely a leap of faith. Even the best marketing people would only be guessing on items #2 and #3 above. They invested many millions of dollars in hopes that their marketing people were right. It's far too early to know if it will pay off (even if Amazon DID release data).
You're right - I misspoke, or miswrote. Accountants would be engaged too, but they won't be the key people.
I think your 4 factors cover the essential ones the accountants likely considered (other factors are in the hands of marketing folks and engineers, I imagine). And I further agree that it's far too early to know if there will be a payoff. But I disagree (and strong at that) that this program is a pure leap of faith. It is a calculated risk, one (possibly) modelled after the carrier programs and also, to an extent, Amazon's own history. Not that long ago, Amazon was given up for dead. Even now, having convinced many on Wall St. that his business model worked, Bezos remains a true entrepreneur and long-term thinker. It is in the Amazon staff handbook to "think big", which is different from leap of faith. And Bezos seems to believe in it 100%. For that, he is admirable in my books. I hope he succeeds.
I can see the trend is towards meaningless smartass responses. I will keep this in mind the next time you demand answers from me.
People are only doing to you what you often do unto others.
Perhaps they do. Or the Amazon story may turn out (somewhat) like the carriers, who take an initial hit by paying Apple the iPhone subsidy but should make up for it with subscription fees. Amazon's version of subscription fees is content sales, which has no time limit. This still might work. For sure, Amazon's accountants has worked out myriad possible scenarios before they made this gamble.
Yeah, that's why the stock plummeted.
I couldn't disagree more.
Further, if markets are 'irrational', what are you doing there?
Balderdash. In these stock threads we are constantly seeing people post about how a stock "should" be worth this or that, and how they can't understand why it's not worth more or less than the current price. They are expecting the markets to follow some sort of clear set of rules with predicable outcomes. In fact the markets are a function of mass behavior, which is inherently emotional, not rational. I presume you've heard about the classic polar driving forces behind the markets: fear and greed. Good luck rationalizing ether one. If you ever could, you'd be the first. Your Nobel Prize awaits.
I am in the market because I don't worry about its inherent irrationality. Maybe the difference between you and I is, I don't try to pretend that it is rational.
People are only doing to you what you often do unto others.
Oh, sure. Fine excuse.