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From June 1997, post ipo to September 6, 2019, Amazon stock returned roughly 122,134% which equates to about a 37% annual return over this 22 year period versus the S&P 500 return of roughly 251%. WOW comes to mind.
— Source: Stockcharts
 

COMPANY PROFILE

Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. Customer reviews, 1-Click shopping, personalized recommendations, Prime, Fulfillment by Amazon, AWS, Kindle Direct Publishing, Kindle, Fire tablets, Fire TV, Amazon Echo, and Alexa are some of the products and services pioneered by Amazon. For more information, visit amazon.com/about and follow @AmazonNews.

The best way to understand the power of the Amazon brand is to read their annual shareholder letter. Founder, Jeff Bezos has been writing them since the ipo and they speak volumes to the customer obsession and culture of innovation at Amazon. Here’s the 2018 letter, click on the orange banner.

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Recent Earnings

  • Just remember AMZN is in “spend & innovate” mode. Historically spending now helps sales, earnings, and cash flow later.

  • Q3 sales+ 24% to $70.0 billion - Impressive & accelerated.

  • Free cash flow increased to $23.5 billion for the trailing twelve months - slowing.

  • Operating cash flow increased 33% to $35.3 billion for the trailing twelve months - slowing.

  • Carbon footprint focus: Amazon ordered 100,000 electric delivery vehicles from Rivian — the largest ever order of electric delivery vehicles.

  • Amazon pledged to reach 80% renewable energy by 2024 and 100% renewable by 2030.

  • So many products - Echo, Alexa suite, FireTV, eero wi-fi, content, live sports, music, gaming, Amazon Fresh store development, private label suite building, AWS expansion,etc.

  • Amazon fulfillment services growing well.

Fourth Quarter 2019 Guidance

  • Net sales are expected to be between $80.0 billion and $86.5 billion

  • Grow between 11% and 20% compared with fourth quarter 2018.

  • This guidance anticipates an unfavorable impact of approximately 80 basis points from foreign exchange rates.

  • Operating income is expected to be between $1.2 billion and $2.9 billion, compared with $3.8 billion in fourth quarter 2018. This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded.

AWS - Growth slowed dramatically but likely dealing with the law of large numbers going forward. Something to watch.

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Opinion

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Amazon scores well as of 9/17/19:

  • 80% low debt to enterprise value

  • 97% high total sales

  • 96% high total free cash flow

  • 97% high free cash flow growth

  • 91% high 1 YR sales growth

  • 93% high 1 YR EPS growth

  • 89% high 3YR sales growth

  • 81% high margin expansion

10/24/19 Update:

I’m a bit concerned that Amazon has been alienating brands and pushing them towards firms like Shopify, that’s why I own both great brands. Brands want to own the customer data versus Amazon owning it currently on their platform. Having a brand list products on Amazon then showing a customer Amazon private label options is not the way to build a great reputation with each brand.

Amazon is down 7% after hours after reporting its most recent quarter. There’s some significant changes in their reporting this quarter that are important to highlight. Amazon took retailers by surprise and left them flat-footed for years, that no longer is true. Amazon is still a beloved brand from consumers but the company simply cannot keep up the growth they have had over the last 20 years. Right now, they are spending aggressively on 1-day shipping logistics which will continue to drive customer loyalty but this takes time and is very expensive. They are also under a regulatory microscope and likely spending on tangible items and optics are in focus. This quarter’s press release had a significant more bullet points for things like carbon foot-print initiatives, local school education initiatives, etc. Call me cynical but the timing of these ramping up seems a bit curious and is likely a drain on resources. They also ordered 100,000 EV vehicles that will add to their operating efficiency in the logistics and delivery fleet over time. AWS investment continues to ramp as they add more services to beef up their competitive edge and add more sales staff and tech services capabilities. Costs are rising across the board but much of those costs stem from increased demand for products and services. Inventory builds cost money, logistics and distribution centers cost money, added hiring costs money, we have seen this story before, it’s just a story on a grander scale. Once this spending spree slows, there will be a sling-shot effect on the revenue, margin, free-cash flow lines in future quarters.

Ad revenue will continue to ramp, albeit on a lumpy basis. Advertising grew at 45% and it’s still early in the life-cycle. They use machine learning to enhance the experience.

Bottom line:

Amazon is spending across virtually all of its business lines and while the spend makes the quarterly metrics look noisy, they have a history of adding significant value long term. Let the stock come in, buy more on a dip closer to $1600 if you can get it.

Older comments:

How many times a week does a Amazon box show up on your door-step? For my family, it’s at least 1 per week. The convenience of online shopping through Amazon.com is tough to compete with. Amazon figured out decades ago that consumers will be supremely loyal if the shopping experience is exceptional. Amazon may not always have the lowest prices but between the wide assortment of choices, the pleasant shopping experience, the free shipping with a Prime membership and all the perks we get with Prime, Amazon is one of my family’s favorite go-to brands.

We touch Amazon in many ways: Whole Foods, Amazon.com, Zappos.com, Audible.com, Alexa, Amazon Prime Video, Amazon Music, Amazon Book Stores, etc. Corporate America is embracing Amazons AWS cloud offerings as well.

Your investment in Amazon offers you a dedicated allocation to a few important markets: organic physical and online grocery, retail (E-commerce & physical), cloud computing and lots of innovation in consumer products categories. Amazon proved again this quarter they can and will turn on the profitability engine when they want and need to. It’s always been about spending cycles for Amazon as stated above. If you’re a short term investor or trader, sell or short the stock, knock yourself out but I think that’s pretty short-sighted and it hasn’t paid you very well over the years. Make no mistake, the spending cycles will eventually turn into revenue cycles and revenue growth and superior operating metrics like FCF generation & a strong history of generating attractive returns on that cash are what drives stocks higher long term. In my opinion, you have to give Amazon the benefit of the doubt, they’ve earned it for the last 20 years of superior execution. AMZN is a buy on every meaningful dip while I hold my core position. It can be a volatile stock and is prone to big corrections so watch closely and be ready to add to your position when the sentiment turns bearish and the stock has a 10%+ pullback. Historically, the stock has had plenty of 20-30% corrections since the late 1990’s and yet it’s close to ATH as we speak. One day when the cycle finally ends, or the market cap finally reaches a level where it truly is “as good as it will ever get”, Amazon will be a better sale than a buy but for my money, that time isn’t yet. When they stop pressing the gas on innovation, it will be time to ring the register one last time. Until then, enjoy the ride on one of the most impressive companies the world has ever seen and buy the dips, particularly when the media tells you Amazon has seen its best days.