The Market Ticker
Commentary on The Capital Markets- Category [Earnings]

Earnings, earnings, what are those?

“Amazon Web Services is a $5 billion business and still growing fast — in fact it’s accelerating,” said Jeff Bezos, founder and CEO of

So, a billion and a quarter a quarter.  Hmmm.... $22.7 billion in sales, so this is..... 5%ish?  Wow, man, this is why the stock was up $25 after hours and more this morning before the bell?  Really?

But that's not really the problem.  No, the problem is that margins are contracting for cloud services -- in fact, by a lot on an annual comparison basis!

Why?  Competition.

What's worse is that technology and content costs were up 40% over the same period last quarter.  Yes, sales expanded -- by 15%.  But the company is spending a lot more on back office and back end requirements -- at close to three times the rate sales are increasing.  Worse, G&A (administrative expenses) increased at a 30% annualized rate, which is double the increase in sales.  And fulfillment costs were higher too.

How is the company not down the drain?  That's simple: Cost of golds sold, which means they're squeezing suppliers hard.

How bad is the competitive pressure on AWS?  Their gross margin is now 17% -- it was 23% a year ago.

Prediction: It will be under 10% within two years; an effective commodity product.

Now the really bad news: Electronics and general merchandise (where profits are thin) continues to dominate.  What's worse is that media actually contracted internationally -- down 12%.

Media is the high-margin business for Amazon.

But the news gets worse.  Current assets were down 17%; better inventory control and accounts receivable contributed (and that's good) but cash on hand was off 30% (awful.)  The only good news is that current liabilities were also down, particularly accounts payable.

And it doesn't end there -- new capital lease obligations were up an astounding 89% year/over/year and their free cash flow less lease repayments and capital acquired under leases was negative.

I like the sales increases -- but for context with the AWS 17% margin let me clue you in on MCSNet's pretax operating margin (yes, all-in operating margin) when I ran the joint in the mid 1990s..... it was 42%.

At 17% you start thinking (hard!) about whether its worth being in the business, especially when you were in the mid-20s the year before.

At 10% one mistake, or one problem with the competitive marketplace (where you get severely undercut) buries you.

Naw, it's not a bubble @ $432/share smiley

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2015-04-21 20:53 by Karl Denninger
in Earnings , 360 references


So they blame "pork" for their fall today, after a rocket shot a week ago Friday.  Heh, it's always good to have the truth come out, no?  Never mind their so-called "Growth Rate" is coming in on forward estimates too.

That's not a problem when you sell for 49 times earnings, is it?


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Amusing as hell -- they missed bad on earnings, matched revenues, but added a lot of subscribers -- and the market loves it.

Of course the problem is that it's easy to add users if you don't give a damn if you make any money on them!  They said "margins are getting better" but that sure didn't show up in earnings did it?

Naw, it's not a bubble folks at 110x earnings -- before this miss (which, extrapolated, makes it roughly 400x!)......



PS: Don't look at their free cash flow -- that, incidentally, is a hell of a lot more important than EPS in terms of a firm's financial health, and it's deeply negative.  As in "holy crap!" negative......

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2015-03-29 11:28 by Karl Denninger
in Earnings , 379 references

So to answer the questions on what I think of the firm's earnings report: Nice, in a word.

Let's remember one thing right up front: BlackBerry's CEO has said one thing about the firm's forward guidance -- they would be earnings-positive in this (now) fiscal year.

Now in context: They achieved a profit instead of a loss this last (last quarter of previous fiscal year) reporting period.

At least as important, they did so on a cash-flow basis -- not "after items."  Companies that have positive cash flow are not in financial trouble and this was confirmed by the company's cash balance, which increased.

Further the hardware sales are profitable, so there's nothing to whack off that is losing money.

I want those of you who have taken shots at this firm over the last several years to answer one question: Chen has now put forward several statements as to what he would do, and he has done them.  When do you stop attacking a guy who says "I'm going to do X" and then he does it -- ahead of or on schedule?

As for the firm's hardware prospects I believe that the first time a truly ugly security breach is traced to either Android or IOS on a mobile device, and I firmly believe this will happen in due course, you're going to see an utterly-enormous and immediate move in the corporate space to the only secure alternative that can also run Android apps.

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