Amazon

[Grieve]

Great article about the insanity of Wall Street's love affair with Amazon (and yes, I'm invested in it too, but thinking hard about getting out here).

http://www.gurufocus.com/news/145911/pri...l-and-amzn

[Slamz]

He sounds like someone who needs to come up out of the books to get some air.

The big factors are the ones that I think are harder to put a number on and harder to predict and he didn't bring up any of them.

Apple's future, to my eye, always looks suspect. They're a company that could go into the shitter next year or they could continue to grow hand over fist for the next 50 years. They have an extremely popular but very narrow product lineup that's highly subject to the fickle wants of the public. They aren't diversifying. They aren't selling stuff that's largely independent of the fickle public, like big backend servers. Their tight controls limit the possible applications of their products. They're kinda like Facebook or Myspace, in a way: big success could turn into a vanishing act in the course of about a month.

Really, I think the best thing about Apple as a company, from an investor standpoint, is their staggering profit margins. What makes me nervous is that they aren't using that enormous profit margin to grow or diversify.

Whereas Amazon is a company that's hard to envision collapsing. They're slowly killing everyone. They're diversifying in slow but smart ways, some of which could potentially be bigger than retail one day. And while retailers benefit from customer loyalty, ultimately people will go where the deals are as long as the rest isn't too messed up, and Amazon as a retailer does a lot of things right.

Amazon's P/E is a bit ridiculous and I always pull back when they cross $200 but investors still love them, so it's hard to say where to draw the line. I mean I draw it at $200 but here they are at $225. I could'a made a fair margin more by holding out! I can only imagine that investors see Bezos as someone with good vision for the future who's taking Amazon in a good direction while Apple's leadership and future are seen as unknowns.

That's why I think Apple continues to be a lagger on the market while Amazon's stock continues to plow straight through what the numbers suggest it should be at.


Or maybe to put it another way, I see AAPL as high risk, potential high reward while AMZN I see as low risk, modest reward.

I do think Apple could sail into space if they come out with The Next Big Thing. The problem is if they don't, they may turn into MySpace.

[Grieve]

They both actually have very similar stock performance over the last 10 years, which is interesting. Apple has much better fundamentals over that time, but I would cautiously agree with you that they MAY be more risk to Apple's model than Amazon's. The problem with Amazon is that they don't make a lot of money, plus I think they will be less appealing once everyone has to pay state sales tax on whatever they buy. And giving stuff away at a loss to generate content sales is always a risky model.

Really, I think the best thing about Apple as a company, from an investor standpoint, is their staggering profit margins. What makes me nervous is that they aren't using that enormous profit margin to grow or diversify.

I'd say that's exactly what they are doing. For their first 25 years they did computers and pretty much nothing else. In the last 10 or so they've moved into the music business (iPod), the phone business (iPhone), tablet computers (iPad), the book business (iBooks), and mostly likely the TV business later this year. If that isn't growth and diversification, I don't know what is. Certainly compared to Google, who still get something like 99% of their money from search.

I have a feeling right now money is coming out of Apple and other tech companies because of Facebook IPO mania (people cashing in positions to buy FB stock). I think once that burns out, they will roar back and head for $1000.

[Slamz]

I'd say that's exactly what they are doing. For their first 25 years they did computers and pretty much nothing else. In the last 10 or so they've moved into the music business (iPod), the phone business (iPhone), tablet computers (iPad), the book business (iBooks), and mostly likely the TV business later this year. If that isn't growth and diversification, I don't know what is. Certainly compared to Google, who still get something like 99% of their money from search.

That's not much diversity. In fact, the iPod appears to have already peaked and is in decline, almost certainly because the iPhone has replaced it.

And much of their "diversity" is really interconnected. Samsung, for example, sells printers but they aren't reliant on the success of some Samsung branded computer for their success. Samsung's computer business could go belly up tomorrow and the rest of Samsung would function just fine. Samsung has a lot of diversity in their offerings.

Apple is tight-knit. It may be what got them to where they are but I think it's precarious and as a potential investor, it worries me. They seem to take the Mark Twain approach: "put all of your eggs into one basket and watch that basket."

I think investor confidence would go up if they could either release something new and big that's not quite so intricately tied to their previous products or if it was a bit clearer that they had some good plans for their excess billions.

This sort of thing is worrysome, too:
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Apple, despite being way richer than a lot of other companies on that list, is spending relatively little on R&D, both in terms of real dollars and percentages. I mean really. They're being outspent by Seagate and EMC? It does make me wonder what the heck they're doing, or where they're planning to go as a company.

[Jakensama]

Apple has something Amazon doesn't have in the same numbers, legions of quasi religious fanatical true believers...

[Grieve]

And much of their "diversity" is really interconnected. Samsung, for example, sells printers but they aren't reliant on the success of some Samsung branded computer for their success. Samsung's computer business could go belly up tomorrow and the rest of Samsung would function just fine. Samsung has a lot of diversity in their offerings.

You call that a problem, I call that genius. It's the Apple "halo" effect. Someone buys an iPod or an iPhone, loves it, and goes looking for other Apple products like a mac or a iPad. Someone visits a family member, sees them Airplaying a game from their iPhone to their big screen TV, and thinks "man, I've got to get an Apple TV". Someone has an iPhone with 200 apps, and wants to buy a tablet. Do they buy a Kindle Fire and have to buy all their apps from scratch, or an iPad that will play all their existing apps?

I think investor confidence would go up if they could either release something new and big that's not quite so intricately tied to their previous products

Refrigerators? Garden furniture? Chocolate bars?

or if it was a bit clearer that they had some good plans for their excess billions.

I think investors would be far more concerned if they went out and blew their cash on buying Facebook or Disney or whatever. They announced a dividend, a buyback, they are aggressively expanding their stores
worldwide, and they are buying up components in bulk at a discount. All good things in my book.

Apple, despite being way richer than a lot of other companies on that list, is spending relatively little on R&D, both in terms of real dollars and percentages. I mean really. They're being outspent by Seagate and EMC? It does make me wonder what the heck they're doing, or where they're planning to go as a company.

More isn't always (or even usually) better. HP is spending 4X as much on R&D, and yet their profit tanked 44% last quarter. Is that the model Apple should follow?

http://online.wsj.com/article/SB10001424...14640.html

[Grieve]

Apple has something Amazon doesn't have in the same numbers, legions of quasi religious fanatical true believers...

Well they have Slamz... Plus my wife, and pretty much every other female member of the family, who are all always telling me we should invest in Amazon.

Plus Apple revenue has jumped from $5b in 2001 to $108b in 2011. So their legions of true believers must either be breeding very fast, or spending an awful lot more money. Or it just may be that 99% of their revenue come from regular people.

[Xyphos]

Apple has something Amazon doesn't have in the same numbers, legions of quasi religious fanatical true believers...

Plus Apple revenue has jumped from $5b in 2001 to $108b in 2011. So their legions of true believers must either be breeding very fast, or spending an awful lot more money. Or it just may be that 99% of their revenue come from regular people.

My personal favorite is when Apple fanatics like to compare their 2300$ macbook pro to a 400$ Toshiba gimme laptop, and sing how much better their macbook is..

Point of that little blurb is when each Mac Fanatic is spending 400$ on their iPhone, then 1300$ on their macbook air, then another 130$ on their apple TV.. it adds up... Quickly. The Fanatics are willing to pay a premium for anything with that stupid apple tagged somewhere on it.

[Grieve]

My personal favorite is when Apple fanatics like to compare their 2300$ macbook pro to a 400$ Toshiba gimme laptop, and sing how much better their macbook is..

Well you must be including Jake as an Apple fanatic then, because he's said before he has a Macbook and thinks it's far better than a Windows machine.

Point of that little blurb is when each Mac Fanatic is spending 400$ on their iPhone, then 1300$ on their macbook air, then another 130$ on their apple TV.. it adds up... Quickly. The Fanatics are willing to pay a premium for anything with that stupid apple tagged somewhere on it.

Unless you are talking Canadian or Australian dollars, you are drinking the "Apple products are way overpriced" coolaid.

The iPhone starts at free (for a 3GS), $99 (for a 4), and $199 (for a 4S). The Galaxy Note is $300. So is the Droid Razr Maxx. Even the Blackberry Bold is $230!

The AppleTV is $99. The Macbook air starts at $999, and they are rumored to be releasing a $799 version soon. The Macbook Pro starts at $1199. Sure you can buy cheaper PC laptops, but you can also buy PC laptops for many thousands of dollars.

They sold 35 million phones...just last quarter. Probably will be 150-200 million units this year. Do you think there are 200 million fanatics?

[Slamz]

You call that a problem, I call that genius. It's the Apple "halo" effect. Someone buys an iPod or an iPhone, loves it, and goes looking for other Apple products like a mac or a iPad.

I call it the Apple "tar pit" effect. Someone buys a Mac, loves it, and goes looking for accessories or add-ons for it and discovers that much of the wide world of manufacturing and invention is sealed off from them. If they see anything they want and Apple doesn't make it (or doesn't make a reasonably priced version of it) then they'll have to dump Apple entirely in order to use it. e.g., your selection of hardware upgrades (like video cards) is very limited and your ability to use 3rd party accessories (programmable mice, keyboards, headsets) can depend on if the manufacturer made a driver for Mac or not.

Also, would you like an iPhone with a little bit bigger screen? Little bit smaller? Want an SD card slot? Tough! (Although Maxell will sell you an incredibly overpriced one because it has to double as a Wi-fi network in order to talk to an iPhone.) You have Apple's few options and that's it.

Meanwhile, someone invested in Android no longer likes their HTC phone -- well they can go out and see what's offered by Samsung or Motorola or others. Might not be great from HTC's perspective, but it's good from the consumer point of view. (It's certainly good for Amazon, who is more interested in content sales anyway. Don't have a Fire? No problem! They'll sell to your Samsung tablet too. Samsung gets out of the business? No problem! Their stuff will work on Motorola.)

This is why I think investors are jittery about Apple. What you see as "genius", I see as "precarious". I can only guess what the bulk of investors see that makes them continue to under-buy Apple stock, but I'm guessing the opinions I've shared here may play a big part of it.

Apple is playing a high-wire act and while that may have been a necessity 10 years ago, it's a real puzzler today.

Refrigerators? Garden furniture? Chocolate bars?

Digital content providers? Enterprise servers? Enterprise software?

Amazon continues to branch out in sensible ways. Apple keeps things close and their vision for the future seems to be "my way or the highway". There's a risk that it'll be the highway.

[Slamz]

The iPhone starts at free (for a 3GS), $99 (for a 4), and $199 (for a 4S). The Galaxy Note is $300. So is the Droid Razr Maxx. Even the Blackberry Bold is $230!

Bzzzzt.

iPhone 3GS for "free" with a 2-year contract from AT&T.

You can get the Blackberry Bold for $79.99 with an AT&T contract, too (sold through Amazon...)



iPhone 3GS unlocked with no contract is still $375.


Apparently you can get the 4G HTC Thunderbolt (the phone I have) for 1 cent with a contract now, too (new Verizon Wireless customers -- existing customers can get it for $80.... this deal is offered on Amazon, too).

[Grieve]

I call it the Apple "tar pit" effect. Someone buys a Mac, loves it, and goes looking for accessories or add-ons for it and discovers that much of the wide world of manufacturing and invention is sealed off from them. If they see anything they want and Apple doesn't make it (or doesn't make a reasonably priced version of it) then they'll have to dump Apple entirely in order to use it. e.g., your selection of hardware upgrades (like video cards) is very limited and your ability to use 3rd party accessories (programmable mice, keyboards, headsets) can depend on if the manufacturer made a driver for Mac or not.

You are talking about geek stuff. How many people buying a family computer need a programmable mouse? If you are arguing that Apple targets the mainstream rather than gamers and techogeeks, I'd agree. But they are missing out on a pretty niche market.

Digital content providers?

What do you mean - produce their own digital content, like movies and TV and music and so on? They may end up doing that, but I think that's a pretty risky business in and of itself. Isn't it better to let others make the content while they continue to sell it with a 30% take, as now?

Enterprise servers?

http://www.apple.com/server/

Enterprise software?

Again, why not let others write it while they take their 30% cut for the mac app store?

Amazon continues to branch out in sensible ways. Apple keeps things close and their vision for the future seems to be "my way or the highway". There's a risk that it'll be the highway.

Amazon continues to generate lower profits - the most recent quarter was 35% down from last year.

And I'm not sure exactly how Amazon have branched out from their core business. Everything they do (e.g. Kindle, Kindle Fire, cloud) is aimed at making people buy more of their stuff...just like Apple.

[Grieve]

The iPhone starts at free (for a 3GS), $99 (for a 4), and $199 (for a 4S). The Galaxy Note is $300. So is the Droid Razr Maxx. Even the Blackberry Bold is $230!

Bzzzzt.

iPhone 3GS for "free" with a 2-year contract from AT&T.

You can get the Blackberry Bold for $79.99 with an AT&T contract, too (sold through Amazon...)

iPhone 3GS unlocked with no contract is still $375.

Apparently you can get the 4G HTC Thunderbolt (the phone I have) for 1 cent with a contract now, too (new Verizon Wireless customers -- existing customers can get it for $80.... this deal is offered on Amazon, too).

I'm not sure what point you are making - almost all phones in the US are sold with a contract. All the (higher) prices I quoted for Android phones are with a contact too. Yes, you can get older Android phones for free with contract, and yes you can get the older iPhone for free with a contract. My point is that there is not a price premium on an iPhone with contract - it's the same as everything else. Off contract price for the US really doesn't matter.

[Xyphos]

Unless you are talking Canadian or Australian dollars, you are drinking the "Apple products are way overpriced" coolaid.

The iPhone starts at free (for a 3GS), $99 (for a 4), and $199 (for a 4S). The Galaxy Note is $300. So is the Droid Razr Maxx. Even the Blackberry Bold is $230!

The AppleTV is $99. The Macbook air starts at $999, and they are rumored to be releasing a $799 version soon. The Macbook Pro starts at $1199. Sure you can buy cheaper PC laptops, but you can also buy PC laptops for many thousands of dollars.

They sold 35 million phones...just last quarter. Probably will be 150-200 million units this year. Do you think there are 200 million fanatics?

<!-- m --><a class="postlink" href="http://www.amazon.com/Motorola-XT-910-Unlocked-Smartphone-Warranty/dp/B005PTZT6Q">http://www.amazon.com/Motorola-XT-910-U ... B005PTZT6Q</a><!-- m --> - unlocked razr

<!-- m --><a class="postlink" href="http://www.amazon.com/Apple-iPhone-Factory-unlocked-MD237LL/dp/B005YSNGH2">http://www.amazon.com/Apple-iPhone-Fact ... B005YSNGH2</a><!-- m --> - unlocked 4s.

I wasn't refering to a contract, as not everyone has the patience to wait for their upgrade.

While I am aware the starting price of the macbook air is currently 999$, that is the 11" 64gb version. They can go up to as much as 1600$ to my knowledge, so I decided to take what I figured was fair and went with the 1300$ one. You may disagree, that's fine, but at least I didn't use the high end of the spectrum, where as you're clearly citing the lowest.

Do I think there are 200 million fanatics? no. Do all the fanatics I know and have dealt with don't just settle for one device? They sure don't. I think that the hook is many people that go apple then try to fill every single niche in their life with an apple product. Tivo? Why not apple TV. Stereo? Why not iPod dock. and so on.

[Grieve]

I wasn't refering to a contract, as not everyone has the patience to wait for their upgrade.

But like I said in my reply to Slamz, almost everyone in the US gets a phone on contract, so it doesn't really matter.

In the links you sent, the list price of the razr was higher, but it was on sale. Apple products are almost never on sale, because they don't need to put them on sale to sell. Other companies have sales because it's the only way they can offload the product.

When HP had a firesale of it's TouchPad (dropping from $500 to $99), it wasn't because they were a smart company picking the right price, or because they wanted to help consumers. It was because they couldn't sell it any other way.

While I am aware the starting price of the macbook air is currently 999$, that is the 11" 64gb version. They can go up to as much as 1600$ to my knowledge, so I decided to take what I figured was fair and went with the 1300$ one. You may disagree, that's fine, but at least I didn't use the high end of the spectrum, where as you're clearly citing the lowest..

*shrug* You pay for quality. I can get a pair of jeans for at Walmart for $5. I can get a burger from McDonalds for a dollar. You can get PC notebooks for way less the the cheapest Macbook, and also for way more than the most expensive one. It's just a bigger range. Apple doesn't do the low-end.

Do I think there are 200 million fanatics? no. Do all the fanatics I know and have dealt with don't just settle for one device? They sure don't. I think that the hook is many people that go apple then try to fill every single niche in their life with an apple product. Tivo? Why not apple TV. Stereo? Why not iPod dock. and so on.

I think that's more brand loyalty. I knew plenty of people who used to only buy Sony video and audio equipment back in the day. Other people only buy Samsung appliances. If you have a good experience with a company, why wouldn't you want to stick with them?

[Xyphos]

Apple doesn't do the low-end.

This summarizes the elitist attitude that many apple owners have, that tends to raise the ire of the PC owners... You say "doesn't do low end", I say "pays a premium for a logo".

[Grieve]

Apple doesn't do the low-end.

This summarizes the elitist attitude that many apple owners have, that tends to raise the ire of the PC owners... You say "doesn't do low end", I say "pays a premium for a logo".

I don't really get your point. Some companies target the low end and there's nothing wrong with that. Some companies don't, and there's nothing wrong with that either. Does that mean that every clothing store that doesn't sell jeans for $5 is elitist? Every restaurant that doesn't have a $1 burger is elitist?

It's just the same in the PC world anyway. Alienware don't target the low end. Sony typically don't target the low-end. If you don't want to compromize on quality, what's the problem? Nobody is forcing anyone to buy their stuff.

Personally I'm sick of buying cheap crap that barely it makes it past the warrenty period. I'd rather pay more up front for something that will last longer and give me a better experience. But I can't say I've paid more with Apple (I don't own any of their computers, by the way).

[Slamz]

1) Wonder why AMZN is far more popular than the numbers suggest it should be and why AAPL is far less popular than the numbers suggest it should be
2) Get lots of reasons
3) Make excuses for all of them
4) Goto 1

[Grieve]

Okay, here's another try. Really good article on Forbes about this. I've heard these arguments before, but usually not so well put.

http://www.forbes.com/sites/darcytravlos...=yahoofeed

Basically, funds have a limit of how much money they can have invested in any one stock (typically 3-5% of total). Right now, most large funds (e.g. Fidelity and Vanguard) have hit that limit, so they can't buy more. And the crazy thing is, as Apple goes up in price, the percentage value in their portfolio increases, so they HAVE to sell. Which explains the long periods Apple spends in trading ranges. And also explains why the stock went up a lot after the dividend announcement (opened up more funds who can buy).

But right now the only way the stock can really go up is if hedge funds and retail investors (us) buy it. One way Apple could facilitate that is to do a stock split (making the stock "look" cheaper).

It does make a rare advantage that the average investor has - mutual funds CAN'T buy any more, even though the stock is undervalued, but we can.

I still believe the stock hits $1000 next year (if not before). Keeping my call spreads...

[Grieve]

Whatever Amazon strategy is, it doesn't seem to be paying right now. They just announced earnings of 1 cent (yes, 1 cent) a share, on total profit of $7m for the quarter. Stock is selling off pretty badly.

FB on the other hand beat handily, and is up nicely (although not as much as it dropped during the day...)

[Slamz]

Amazon has been unusually overpriced for a while. I've been waiting months for them to take a dive. I still think they're a great company and going places but not with a $220 stock price.

[Vanraw]

Amazon is investing strong in capital infrastructure which is a god long term.

On FB it looks like the real issue is the same. Concern over rate of new customers, and so much of the revenue is based on ad's. If FB doesn't want to be a $3 stock they need to start buying stuff that diversifies its revenue stream. Hopefully they are reading the google book on how to do this......

[Slamz]

Amazon hit quite the home run today. +7.5% when I look at it right now. I keep waiting for a good dip so I can get back in but they just keep going up.

According to analysts, the market liked the higher gross profit margin -- apparently their highest in 7 years. So even though their EPS is low and the P/E is ridiculously high, I guess people are liking the way the profit numbers are headed.

Apparently it's Amazon's 3rd party seller section that's pushing higher profits, which is interesting. 3P is one of my least favorite Amazon features and I try to avoid them whenever possible -- it's basically eBay. On the other hand, 3P sales are one of the reasons I can go to Amazon and find whatever I'm looking for 99% of the time. I bought a replacement battery for an old UPS off of Amazon from a 3rd party seller recently. It was just battery store in Oklahoma or something, selling through Amazon. Had they not been listed there I would have had to troll the internet for them.

[Grieve]

Yeah, I posted a bit too soon after the numbers last night. As well as Amazon did on the upside, FB did even more...but to the downside.

Q4 is typically the best quarter for tech, so now might not be a bad time to get in to any of them. Amazon is going to be launching 4 new Kindle Fires any day now.