Friday, October 27, 2017

The Market Ticker Has Some Thoughts on Amazon (AMZN)

AMZN is up $129.34 (13.30%) at $1,101.77 making Mr. Bezos the richest person in the world, again.

The Market Ticker has two posts on The Beast. All bolding and underlining is his.
First up (and linked again after the second headline):

CNBC should be taken off the air for this outrageous pumping of a scam.
And a scam it is.
Here's from the Amazon Q, off their own page:

That is, the quarter, the gross sales (of products), fulfillment costs, then cost of goods sold.

Note that their net (sales minus fulfillment and cost of products) for products has gone from a negative 9.2% margin to a negative 15.62 percent margin.

They're selling everything physical they sell, including all the costs they lard up on the sellers, at a nearly 16% LOSS.

What's even better is that they're getting squeezed margin-wise on all metrics at once.  Their gross margin (cost of goods sold .vs. sales) is down from 10.09% to 5.52% over the last year -- nearly half.  At the same time while sales went up 17% fulfillment costs skyrocketed by 33% and what's worse the cost of goods sold was up by 22% as well -- 500 basis points above gross sales!

"Leverage"?  Well sure, for a good long time you can sell at a loss as your costs go up on all metrics much faster than your sales do and drive other people out of business doing that.  The problem is that the market is supposed to stop you from taking that path through two mechanisms: Unfair competitive practice law and Wall Street is not supposed to let you pull this crap on a sustained basis either -- the street analysts should immediately call "BeeEss!" on any such attempt.

But Amazon doesn't only do it on a sustained basis they're boosted by Wall Street "opinions" that intentionally omit the very facts found on the top of the company's own financial reports!  There was not one word on the outrageous destruction of operating margins and ridiculous expansion of negative gross margins from all sides in any of the research notes I read this morning....

Which was followed by:

Dear Mr. President (and everyone else) Go **** Yourself
   Go read this article folks.
Now let this sink in: Everyone says that entrepreneurship is how the economy grows, right?
Grows for real, that is.

In order for someone to have a reason to engage in an entrepreneurial pursuit they have to have some sort of way to compete with those already in the market, whatever that may be.  At the end of the day everything, more or less, comes down to price.

When I started MCSNet in the 1990s in Chicago we were literally the second company (by one day at that) selling consumer internet access.

A couple of years later there were one hundred competitors in our local market.
Needless to say the only way to keep your head above water to find ways to do more with less.  Well, the only honest way.

We had no debt or Wall Street financing.  We also never turned a negative number on the bottom line, nor did we have any way to cross-subsidize one thing with another.  Either the products and services we sold made a profit all-in or we were crazy to keep doing whatever that particular thing was.

Today, on the other hand, the argument made for "entrepreneurship" is for me to come into a market and sell a good or service against a competitor that is running a negative fifteen percent operating margin on the sale of everything they merchandise, and that's before their marketing and SG&A expenses!

In other words just on the direct cost of their goods they sell plus their fulfillment (getting the goods to you) cost their gross margin on those sales of goods is negative 15%.

That in turn means I can't beat them on SG&A and win, I can't beat them on marketing effectiveness and win, and since they're larger than I am the odds of me being able to beat them on COGS is an effective zero since Robinson-Patman says that said supplier(s) can't discriminate between customers buying like kind and quantity with a goal or effect of decreasing competition as a supplier if the product travels in interstate commerce.

The fact is that anyone who tries to "compete" with such a merchant is simply going to take a large amount of money and turn it into a much smaller amount of money and the longer they do it the more they lose.

This is the "secret" of Amazon in the retail space and what's happening to everyone else -- they intentionally sell at a loss to destroy competitors and in fact they are doing so at an ever-increasing percentage of loss in order to drive even more people out of business.  They're not beating everyone else by being "more competitive", by having "better marketing" or anything of the sort -- they're simply selling at an intentional and ever-increasing (both gross and on a percentage terms) loss....