The United States of SCAmazon
The Market Ticker - Commentary on The Capital Markets
2017-10-27 20:55 by Karl Denninger
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The United States of SCAmazon
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Refer to the table in this article -- note how Amazon is turning nearly a negative 20% margin on goods sold not including SG&A (that is, their sales and administrative expenses, such as the buildings and their employees) but only counting the cost of goods sold and their fulfillment (shipping and warehousing) expense.

I wish to note that generally cross-subsidizing is legal provided it's not done for an unlawful purpose.

For example it is legal to sell something as a "loss leader" to get people into your store in the hope that they will buy a profitable product or service (which makes enough profit to cover the cost of both), whether that other sale takes place at the same time or somewhere down the road.  There's nothing illegal about using a "teaser" product to get people to shop with you, in short.

However, if the purpose of said intentional selling at a loss is to destroy competitors in your market and you have the market power to do so that's against the law under the Sherman Act.  In fact, it's a felony.

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

Note that you not need to do this between two or more companies -- it is entirely illegal to do so within the walls of one firm alone.

Corporations exist for one purpose alone -- to make a profit.  This does not mean that every firm succeeds in making a profit, of course.  In point of fact 8 out of 10 new firms fail within five years as they are unable to meet the essential test of "business" -- turning a profit.

But look at this, which is an extension of the table I created earlier -- it goes back more than five years and is taken from the SEC's filings made by Amazon.

DateSalesCOGSSales/Cog %FulfillmentNet% Profit
2013/Q1132711180112.46%1796-326-2.46%
2013/Q2127521120913.77%1837-294-2.31%
2013/Q3138081236611.66%2034-592-4.29%
2013/Q4210721880612.05%2918-652-3.09%
2014/Q1157051405511.74%2317-667-4.25%
2014/Q2152511339913.82%2382-530-3.48%
2014/Q316022146279.54%2643-1248-7.79%
2014/Q4231022067111.76%3424-993-4.30%
2015/Q1170841539510.97%2759-1070-6.26%
2015/Q2171041516012.82%2876-932-5.45%
2015/Q3184631675510.19%3230-1522-8.24%
2015/Q426618243419.35%4546-2269-8.52%
2016/Q120581188669.09%3687-1972-9.58%
2016/Q2211161918010.09%3878-1942-9.20%
2016/Q322339212605.08%4335-3256-14.58%
2016/Q430629289585.77%5719-4048-13.22%
2017/Q123734224405.77%4697-3403-14.34%
2017/Q224745234515.52%5158-3864-15.62%
2017/Q328768275494.42%6420-5201-18.08%

This is Amazon's sales of goods (ed: Before attacking this table, read the italicized portion at the bottom.)

Their top-line margin (simply sales divided by cost-of-goods sold) has gone from 12.46% to 4.42%, a collapse of approximately 65%, over that period of time.  At the same time their operating loss not including general and administrative costs, nor marketing -- that is, just the cost of the product and "fulfillment", has gone from -2.46% to -18.08%, an explosion of more than 730%.

The argument could be, of course, that there are "other than COGS" in that number.  Well, ok, but read on below and then keep trying to find a scenario under which that claim fits for material components of that figure.

You see, what's most-interesting in the table is that in approximately the third quarter of 2016 the company basically gave up and surrendered, essentially "throwing a switch", removing 500 basis points of markup over cost in a step function that has no rational explanation among any change in the mix of products and services sold that occurred at the same time.  I have not seen one word out of the analyst community (or the company for that matter) on this.  In fact all the analysts have been "cheering" on the "acceleration" of the firm's prospects and results, with the stock price going from $700 then to $1105 today. Yet it appears that Amazon went from losing 10% on all the goods it sold to 18% or nearly double the loss during that same time period.  The latest escalation in loss during the most-recent quarter is associated with ramping fulfillment expense (up 35% in one quarter against a 16% sales increase) which the firm tried to "dull" by taking another 110 basis points off its "cost" markup!

The company now, it appears, loses approximately one dollar in five whenever someone buys a "thing" from Amazon.

This is not some startup attempting to claw its way into relevance; it is a mature firm that employs tens of thousands of people and yet over the last five years it certainly appears it has been incapable of growing its sales of physical product without losing more and more money on each and every sale.  Instead of finding itself with a near-zero stock price both analysts and the media trumpet how "successful" the firm is at being a retailer!  Thanks in no small part to the fawning that the media and analyst community has served up upon a credulous public and their intentional burying of the truth the stock price has more than quadrupled from roughly $250 in early 2013 to over $1,100 today.

It certainly appears that Amazon has "purchased" their increase in the gross sales of goods by literally giving product away at an ever-increasing loss -- a loss that has now reached nearly 20% across the entirety of nearly thirty billion dollars in goods sold last quarter.

Given the amount of data Amazon has and the utterly-stunning percentage of loss they're taking in that regard I'm willing to bet that a nicely-aimed subpoena would show that the company is well aware that the only way they could continue to grow sales to any material degree is to displace existing retailers by intentionally selling at that ever-increasing loss -- and that this is exactly what they're done.

More to the point there is nothing else Amazon sells to consumers that can possibly make back the $5.2 billion dollars lost last quarter through this practice, so any argument that this tactic amounts to a "loss leader", given more than five years of history, is almost-certainly an easily-proved lie.  Specifically,  subscription services (including Prime membership fees, digital video and music, e-book, etc), many of which are sold to consumers, account for only $2.4 billion in gross receipts last quarter.  Amazon does not break out the cost of those services and they have always refused to itemize them but even allowing for a very large (e.g. 50% or more) margin those services cannot possibly be profitably cross-subsidizing the loss on product sales; there simply isn't enough money received from them to do so.

Therefore the purpose of such an increasing, five+ year ramping change in intentional operating losses in the company's product sales segment, assuming it is as it appears to be, has to be called into question.

The effect of these actions, however, on other companies in the consumer product space is not open to question -- witness the myriad and daily mention of various retail channels and individual retailers being "Amazoned" in the media and on conference calls.  In the latest point of attack which I assume the company will also apply this "strategy" to Amazon is apparently attempting to enter wholesale prescription drug sales.

It is perfectly legal to out-compete other sellers by doing more with less and thus having a lower cost structure in your business.  This in turn allows you charge a lower price and gain market share.  That, in fact, is exactly what innovation and competition (otherwise known as "productivity improvement" in the economic field) is supposed to do.

It is not, however, legal to cross-subsidize the sales of your products with another, disjoint services business within your company so as to allow you to sell products at an intentional loss for the purpose of putting others out of business in an attempt to monopolize sales.

The financials disclose that the funding source for Amazon's practices in general is AWS service sales, a completely disjoint service (from the perspective of the consumer who has no reason to buy or use such a service) that happens to be quite profitable on a free cash-flow basis.

Not one person within a state or the federal government has come after Amazon for this pattern of conduct in inquiry of why they are engaged in behavior that I can find no rational explanation for within the boundaries of lawful and fair competition as disclosed to both the public and regulators by their published financials and operating results.

In fact, the pattern strongly suggests that Jeff Bezos and Amazon are using AWS as a vehicle to intentionally drive competitors out of the market in the sale of goods not by out-competing them in cloud computing services but instead by destroying competing retailers of goods through rapidly-accelerating cross-subsidization and intentionally selling goods at a loss which they know their competitors cannot do.

I remind you again that attempting to monopolize trade is a felony.

Just like the medical scams that are rampant in our country and have resulted in ridiculous ramps in health insurer and drug company stocks over the last few years, all of which are based on collusive behavior that I argue amount to extortion Amazon has been rewarded for the latest display of this behavior with more than $120 being added to the firm's stock price on Friday alone, a roughly 12% increase, and has been rewarded enormously over the last five years for same with a more than 400% increase in the price of their stock.  This has inured personally to the executives of the firm, including most-specifically their CEO, Jeff Bezos who has seen his personal wealth swell by tens of billions of dollars while his company appears to have intentionally sold products at ever-increasing rates of loss and destroyed the jobs of tens if not hundreds of thousands of people along with severely damaging or destroying myriad competing companies in the retail space.

I argue the rampjob in the market in general through the mid 2000s happened because of rank lawlessness, just as I know for a fact it did in 1999 as I was running a firm in that space during the 1990s and saw both many competitors and suppliers present projections and claims that were fanciful fictions peddled not only by the firms themselves but by so-called "analysts" and the "media."  Not long after billions of investor dollars were vaporized in the 2000 crash as those works of fiction were exposed.

Eight years later the market crashed in 2008 again because it appeared the people who were scamming would go bankrupt and some might go to prison -- which, from the available evidence, it certainly appeared should happen.

The market bottomed and turned sharply upward almost to the day that Congress declared the blatantly illegal practice of calling an asset valued at whatever you wanted it to be instead of what someone would pay for it a lawful practice.  In other words, nobody was going to go broke and nobody was going to jail either despite the fact that by then we had proof of those firm's practice of selling to customers things described as "good securities" which their own employees were calling "vomit" in "private" conversations among themselves.  The price of vomit, of course, is actually negative (since you normally would have to pay someone to clean it up!)

We have witnessed an unprecedented ramp in the market over the last few years and of those firms that have risen the most I can point to companies just like this one that have no rational legitimate explanation that I can logically put together for their business decisions and behavior.  All explanations that I can analyze which are plausible in light of the public facts devolve into screwing someone, smug in the knowledge that they won't be investigated and punished for doing so, just as they weren't in 2009 and 2000.

What's worse, every bit of this is happening with the explicit complicity and even active promotion of the media, so-called "analysts" who intentionally ignore imploding margins and treat them like they're "good news" along with our own Government, including the President of the United States.

I hope you like getting screwed without being kissed first.

Editorial note: There have been raised questions about the "Cost of Sales" line and what part of services are in there. Here's the issue with that claim: When it comes to pure services there is no good bought first (in other words, cost of goods is zero because there are no goods.)  Second, AWS is said to be 11% of sales (net-net.)  Third, AWS has its operating expense broken out which are claimed to be $3.4 billion, all-in last quarter.  Fourth, for "other services" note that their cost is in fact broken out (tech & content) and that's a high-margin business, as is AWS.  Note that tech&content + G&A + other + marketing = $9.4 billion. Anyone who doesn't believe nearly all (if not all) of AWS's operating expense is absorbed in that $9.4 billion, along with the rest of the cost of other services that are sold (for which there are no goods purchased), has rocks in their head, given what AWS is (a pure service that consumes a shad-ton of electricity and tech expertise which is quite expensive to hire and feed, .vs. $10/hour warehouse peeps that are not.)  Finally, as  the son of a former CPA (now deceased) who was none-too-shy about his experience in this regard with me, never mind my observations with regard to WaMu's "accounting" in early 2007 in which they were paying dividends out of capitalized interest (an accounting entity that doesn't exist in actual cash, I note) let me simply observe that the art of accounting is that exactly how you silo various expense items is, shall we say, subject to quite a bit of "discretion" provided the amounts all total up at the bottom of the page -- and that such discretion is generally-speaking legal.  In addition and perhaps of greatest importance I note that nobody ever hides good news, which means that if that cost item wasn't nearly all COGS it would be broken out in specific detail so that the "good news" would be apparent and on paper, but if it was broken out in such a fashion and later proved to be a lie there would be criminal sanction associated with doing so.  Thus my commentary about a "well-placed" subpoena up above -- not that I believe we'll ever see one.

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User Info The United States of SCAmazon in forum [Market-Ticker]
Tickerguy
Posts: 150381
Incept: 2007-06-26
A True American Patriot!
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PS: Anyone care to bet how few times this article is promoted, retweeted, cited on other social media or printed and handed to representatives, senators and others?

Nobody appears to give a ****, in short, even as all the stores close, the malls become ghost towns and those jobs are lost.

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Winding it down.
Supertruckertom
Posts: 1507
Incept: 2010-11-07

USA
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Kind of glad we are hauling less freight for them. It was almost 20% of our volume.
Amazon is buying their own trailers and hiring smaller companies to pull them.
If you see some plain grey sets of doubles on the highway with only a 3 inch high AMZN and A number on the bottom right corner of the rear door, that is one of them.

So now they are going after the local pharmacy?


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Preparing to go Hunting.
Mekantor
Posts: 143
Incept: 2009-01-12

Houston, TX
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A properly functioning company would've spun off AWS into a separate entity. Since that hasn't happened, it tells you everything you need to know.
Whitehat
Posts: 158
Incept: 2017-06-27

New York City
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for the first time in a few years turned on NBC's morning show and they were talking about a Consumer Reports story about a browser plugin that automatically checks for better prices when you are online shopping. of course this was part of the holiday shopping **** that we have to be pounded with this time of year.

leaving aside the fact that now you have some running object monitoring your web usage and doing whatever with it, this type of thing should be making Amazon **** themselves.

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There are two ways to be rich: One is by acquiring much, and the other is by desiring little.
Dennisglover
Posts: 863
Incept: 2012-12-05

Huntsville, AL
Online
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I'll just go ahead and admit that all of the financial, economic, business-related stuff that gets talked about on here makes about as much sense to me as chess does to a cockatoo. But I think I "get" some of it, just by comparing it with my situation.

Now, from what I see here, were I performing like Amazon, for the last 4 years and 3 quarters I have largely lost in the sense of profit more each quarter than I did the previous one. (Few exceptions, yes, but I was still losing every single quarter.)

I think "Fulfillment" may somehow be otherwise expressed as "a major part of the cost of doing business", along with "cost of goods sold", etc., mainly because of the fact that, in my case, "fulfillment" includes buying and wearing the right kind of clothes, maintaining and fueling a vehicle to get to and from work, paying for lunch, getting training and taking certification exams, etc.

However, if the cost of my "fulfillment" has increased close to 400% over the span of 57 months I'm probably going to suspect that something is not quite right. (Furthermore, had I been going to my company and saying, month-after-month, that I have to have more money to be able to get to work and back home and to keep my qualifications up, etc., then my company might just have some response to that--a response that would not have worked to my benefit.)

Then during the same time period, my profit percentage has changed by -700%+, I've got to thing something stinks.

Not to mention, when my Net has changed by nearly 1600%, well, I've got to ask, "Just how in the world can I keep going to work?" At that point I'm thinking seriously if welfare, disability, and relief wouldn't be a better way to do things.

All right, peeps, here's the drill: I'm absolutely a monetary idiot. Nevertheless I enjoy learning useful things. Tell me where I'm wrong here. Please.

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TANSTAAFL
Redbrian
Posts: 30
Incept: 2010-06-25

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Oh, don't worry, we'll make it up with volume...
Idiom
Posts: 107
Incept: 2015-02-20

New Zealand
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I would have said move to New Zealand but our government just flipped so all bets are off.

Even Amazon hasn't figured out how to compete with our distance problem. Our dominant sites are homegrown.

Amazon is bigger and better organized than most first world militaries. Without the US Govt I have no idea how you go up against them, except to pick the next shift better than they do and capitalize on it big time, and then not sell out.

They are gnawing a hole in the planet.
Quik49
Posts: 4155
Incept: 2007-12-11

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Amazombie....they are eating themselves.... Flabbergasted by how long the meal goes on

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Long Vaseline....

Tdurden
Posts: 567
Incept: 2015-01-29

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Quote:
However, if the purpose of said intentional selling at a loss is to destroy competitors in your market and you have the market power to do so that's against the law under the Sherman Act. In fact, it's a felony.

I'm sure Trump's AG will be all over this. Oh...wait...they're big enough to fight back. Bozos is perfectly safe. Sessions's tenure will largely be confined to helping cops rob totally innocent individuals on america's roadsides. No fear of anyone standing up to him, there.


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"I'd like to live just long enough to be there when they cut off your head and stick it on a pike as a warning to the next 10 generations that some favors come with too high of a price." -Vir Cotto Babylon 5
Analog
Posts: 1490
Incept: 2010-12-29

arkansas ozarks
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How do they make ends meet month to month ?
Borrowed money ? Sell stock ?
Is it just creative accounting?

Seems they're growing like Walmart did - Sam Walton recognized that shelves piled high triggered a primordial 'feeding frenzy' response.
These guys figured out 'one click and it's delivered' triggers some similarly primordial response -
is it power from a distance ? Instant gratification?
Or just convenience, logical extension of the TV remote control ?
They just might be on to something.

Money is a mystery to me .
They say it talks but the only word mine knows is "Goodbye".
I could crash AMZN just by buying some of it.

a.

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Never trust a computer with anything important.
Aztrader
Posts: 7869
Incept: 2007-09-10

Scottsdale, AZ
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It's kind of like Congress using Social Security and Medicare payments to minimize the deficit and show phony numbers.

Ever since they killed MARK TO MARKET and then instituted NON-GAAP accounting, this fraud has gotten worse with every earnings season. There is literally no reporting of honest numbers anymore. By ramping Amazon's share price, they can now buy someone else to destroy that market segment. It really seems like there is a master plan to destroy all the little guys and have a few large companies rule each segment of the market. I see nothing positive coming out of Apple and then they announce that they sold out of their 10 model and the stock explodes. Intel's earnings were nothing spectacular, but they ran along with Microsoft like the economy was on fire.
It seems they reward specific companies and destroy others and seem to be making a point of who controls the markets.
Both ZH and Karl have pointed out the obvious, yet they ramped the stock like nothing we have ever seen before. Their ability to manage these markets no matter what happens tells me that there is a lot more central bank money out there then their balance sheets are showing............
Jfms99
Posts: 219
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Msumelle, Ar
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If I am following the chain of logic here AWS is pretty much subsidizing the rest of Amazon. Yet AWS has falling margins and is now competing against Microsoft, Oracle, and Google, to name a few.

Yesterday I read about CVS buying Aetna on the basis that Amazon may get into the Pharmacy business. The big question I have is how will this work for them and how will they subsidize that business to undercut their competitors with AWS having collapsing margins?

Essentially it looks like Amazon has made no money at all for years. Add into this equation Amazon Studios trying to produce new content for Amazon Prime, that alone is billions of dollars.

So Karl are they hitting the Debt market to fund things like they did with the Whole Markets deal? If so at one point are they borrowed out?
Tickerguy
Posts: 150381
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A True American Patriot!
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Quote:
If I am following the chain of logic here AWS is pretty much subsidizing the rest of Amazon. Yet AWS has falling margins and is now competing against Microsoft, Oracle, and Google, to name a few.

Yes.

Do realize, however, that the other guys have little incentive to raise a lot of hell in this regard.

Consider that "cloud" computing is basically leasing computers in a rack. It's a commodity business. Computers are cheap, low-margin things and putting up a building with power and A/C in it isn't exactly rocket science.

So how do you get double-digit margins out of that? You don't for long, especially with large players in the game who have scale. So why are margins going down slowly rather than collapsing? When the PC clone market showed up PC sales went from 30% margins to 8% in about three months and stayed there forever into the future.

This is inevitable with large firms in any mass-capable tech endeavor EXCEPT if those players all wink and nod at each other. You see, if AWS is the price maker (and being first they were) what large company wants to be the one who blows that up and destroys their own margins in the process?

Ah, grasshopper, now we're getting somewhere.

Small players will come in and cannibalize the bottom, and they HAVE and ARE. Witness Digital Ocean, among others. But Oracle, Microsoft and Google? Do you really think they want 10% margins instead of 30% margins?

Riiiiiiight.

Wink-wink-nod-nod but by the way that's illegal too -- not that anyone cares about that sort of thing, yes?

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Winding it down.
Jfms99
Posts: 219
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Msumelle, Ar
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Now given that bottom feeders like Digital Ocean and others can do as you suggest then they will get customers and could slowly deteriorate the margins of the big guys. The smaller companies can exist on lower margins and make inroads to the big guys. Is that possible?
Nomullet
Posts: 7749
Incept: 2007-11-11

SW
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The most absurd aspect is that they will never be able to corner the market- it's just as easy to buy something off of ebay and usually costs less... so the barrier to entry is almost zero. They will never be able to improve their margins. All this stuff about providing delivery and other ways to lower costs are a bunch of smoke and mirrors. What do they know that UPS doesn't?

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A bad day of programming is better than a good day of management.
Tickerguy
Posts: 150381
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A True American Patriot!
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Quote:
Now given that bottom feeders like Digital Ocean and others can do as you suggest then they will get customers and could slowly deteriorate the margins of the big guys. The smaller companies can exist on lower margins and make inroads to the big guys. Is that possible?

Yes. And Digital Ocean (among others) has done exactly that. Which is why this site runs there; it's cheaper than running it on my own infrastructure (by quite a lot.)

Note that I couldn't get an AWS quote for what it would cost to put it there on comparable services and terms; there was too much noise in the numbers and capabilities to know, but I found no scenario under which it would be less expensive and several under which it might be MUCH more. And yes, I did check pricing there, along with Azure.

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Winding it down.
Tickerguy
Posts: 150381
Incept: 2007-06-26
A True American Patriot!
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Quote:
What do they know that UPS doesn't?

They have a very high-margin service they can shift costs to and revenue from.

UPS doesn't, as UPS is a clean company that moves packages in exchange for money.

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Winding it down.
Aztrader
Posts: 7869
Incept: 2007-09-10

Scottsdale, AZ
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The ultimate plan for Amazon is to stay afloat long enough to kill off much of their competition in specific segments and then to raise prices that are profitable. The point that they are missing is that many of these businesses that they are killing will be laying off workers.
As a mail order business, I support several types of companies simply by existing as a profitable business. I carry inventory from about ten different distributors and manufacturers. I purchase boxes from a local company. I spent close to $24k last year on Fedex and another $20k with the post office. I have my printing done by local companies and we use an American freight company for the big stuff. All these people benefit because I am in business and if you multiply that by 1000, you can see the real damage that Amazon can do to the real economy.
Krzelune
Posts: 5810
Incept: 2007-10-08

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Quote:
Now given that bottom feeders like Digital Ocean and others can do as you suggest then they will get customers and could slowly deteriorate the margins of the big guys. The smaller companies can exist on lower margins and make inroads to the big guys. Is that possible?


The larger companies also have vast herds of lobbyists with money to bribe and pass laws raising the bar with bull**** regulations stamping the little guys to dust.
Vernonb
Posts: 1911
Incept: 2009-06-03

East of Sheol
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"Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not less than $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not less than 10 years, and by both said punishments, in the discretion of the court."

The Sherman law needs some adjustment (as above) due to the wide spread abuse. We need actual law enforcement and laws with some damned teeth so judges and the 'justice' departments are not able to do special services for their cronies.

I want these bastards (and their family members/cronies that profited) out of business permanently and on the street if not in prison. They deserve to be kicked daily by the people they once so willingly, mockingly, and treacherously abused!

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SupertruckerTom,

Seen quite a few of those trucks also seen the light tan/brown ones with the full scAmazon logos all over them advertising prime and other services all over the trailers going down the interstate on I-80 between New York, NY and Sacremento, CA.

If things get ugly it is not a cargo I'd want to be hauling for sure.

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I simply can't get how any reasonable and intelligent investor would even consider buying these stocks. Do they simply depend on mass hysteria and stupid, impulsive sheeple-think to drive the stock prices? I also wonder how many mutual funds buy stocks overlooking the obvious. That is a recipe for true disaster. Most seem to be too lazy to do the homework.

These newscasters and pumpers claim ignorance when confronted with the facts of the fraud. That is no excuse. If you can't read and UNDERSTAND a balance sheet you have no credibility to even offer an opinion on the subject - especially on a national mouthpiece as some type of (fake) expert.

Yes - it is all fake news and fraudulent reporting - even down to the investor markets with crap like this.



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"Mass intelligence does not mean intelligent masses."
Tdurden
Posts: 567
Incept: 2015-01-29

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Amazon blatant law breaking aside, I think twitter vanishes sometime around 2019. Note that their part time CEO decided to tell two Russian outfits, RT and Sputnik that he will not take any of their filthy lucre to fuel his cash furnace. The reasons are as spurious as the whole Mueller witch hunt. Now if this were a real company, Lil' Jack would have had his board turn on him for fear of shareholder lawsuits for declining to take perfectly good revenue for a company that is nowhere near solid.

But I think the only reason that keep that operation propped up is that they were hoping Trump would use his twitter account to self destruct. That's not happening and if it stays that way, no way the political hacks in silly-con valley allow him to have that direct connection to the voters. And if the only way they can shut down that conduit is to fold up the company and burn it to the ground, I think they will.

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"I'd like to live just long enough to be there when they cut off your head and stick it on a pike as a warning to the next 10 generations that some favors come with too high of a price." -Vir Cotto Babylon 5
Analog
Posts: 1490
Incept: 2010-12-29

arkansas ozarks
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Quote:
They have a very high-margin service they can shift costs to and revenue from.

So that's how they make ends meet.
That cash cow will go dry .

Looking at the list of takeovers here
https://www.bringg.com/blog/industry-tre....
it looks to me heavy on the side of pop fluff stuff .
A tech bubble in the making ?
Or ---
if population doubles again
will we become a sit-at-home-and-type-on-the-computer-while-robots-do-the-work society as in Kurt Vonnegut's "Player Piano" ?

In a world of 98% recluses fed by the other 2% , said 98% reduced to 'Prisoner of Second Avenue' apartment dwellers
It would make sense positioning yourself to monopolize distribution .
Living where i do that seems inconceivable . But i suppose it's not to an urban IT Technophile Trillionaire who loves sitting up nights at his computer...

Walmart has built the network of not-urban local distribution centers - i'll start to worry when Amazon sets its sights on them.


a.

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Never trust a computer with anything important.
Tickerguy
Posts: 150381
Incept: 2007-06-26
A True American Patriot!
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They've been trying, but WalMart is repelling them quite effectively.

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Winding it down.
Rsdmems
Posts: 1
Incept: 2017-10-29

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A few points, with the caveat that I agree that AMZN's valuation is an absolute joke for multiple reasons:

"Cost of sales" is specifically defined in the 10-Q as "the purchase price of consumer products, digital media content costs where we record revenue gross, including Prime Video and Prime Music, packaging supplies, sortation and delivery center and related equipment costs, and inbound and outbound shipping costs, including where we are the transportation service provider. The increase in cost of sales in absolute dollars in Q3 2017 and for the nine months ended September 30, 2017, compared to the comparable prior year periods, is primarily due to increased product and shipping costs resulting from increased sales."

So if they're spending billions of dollars a year to create original content for "Prime Video" (which is mostly free with a Prime membership) I assume that's in there with no offsetting revenue.

Bigger picture, from an investment standpoint you can't short this based on the idea that the government will make them raise prices, or you're "Bill Ackman -HLF, Part 2." So yeah, AMZN's valuation is a joke and when the market crashes it will crash hard, but I wouldn't short it without a company-related catalyst and that isn't it. I mean, look at it this way: if the government forced it to raise prices it would lose LESS money! Also, what if in COGS is Alexa units, Kindles, tablets, etc. that it sells below cost in order to get them into peoples' homes, hoping it'll pay off in more business later?

To me the most interesting bear argument on AMZN is the bull argument that "Amazon loses money because it's spending for growth, and it could stop doing that at any time and turn on the profit switch." Well okay, let's say it cut TTM capex from $9 billion to $4.5 billion and 75% of that (assuming a 25% tax rate) falls to the bottom line. In that case earnings go from, say, $4/share to $11/share and now you've got a SLOW-growing company with a PE of 100!

But for all its nonsense, Amazon is basically self-financing through internally generated cash flow, and without being at the mercy of the capital markets and simultaneously having massive top-line growth, it becomes a tough short without an overall market correction.
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