Archive for the ‘Stock Opinions’ Category

Increasingly Confused by Amazon ($AMZN)…the Good, The Bad And The Great

By: ispeculatornew | Date posted: 09.30.2014 (3:00 am)

$AMZNMany of you know how much I believe in my “web ecosystem theory”. I have started working on a new article about it and the impact that mobile has had on that theory but as you can guess, I’m still a big believer in placing chips on the 5 major ecosystem players ($GOOG, $AAPL, $FB, $MSFT, $AMZN). I have already taken significant longer term stakes in Apple and Facebook which have worked out well so far. I’m certainly not saying that other tech players can’t have success but it’s important to keep in mind that they will need to co-exist with these established players in order to do well. Netflix ($NFLX), Twitter ($TWTR) and TripAdvisor ($TRIP – which I recently bought – are a few of the players which I think will do well despite not “controlling their ecosystem”.

Does Amazon Belong To The Group?

The one player that I often got questions about in this group was Amazon because the nature of their activites (ecommerce) was so different but the 5 names seem to be converging rather quickly and as players like Google move towards ecommerce and shipping while Amazon starts working on mobile devices, advertising services, video websites, gaming platforms, etc, it’s increasingly clear that the collisions between these 5 players are only getting started. One area where Amazon does not fit with them however is in terms of market cap. Just take a look at the biggest US companies (in terms of market cap):

topmktcap

You will see that 3 of the ecosystem plays are among the top 4. Facebook is not that far behind and being the most recently founded company, is well on its way to get there. The missing company? Amazon of course is ranked #26 on that list despite its incredible growth story? Why? It’s a rather simple reason: “Lack of profits”. Today I wanted to take a new look at Amazon after reading two very thought provoking posts written by two of the top guys when it comes to tech in the recent weeks that got me thinking. I highly recommend both:

Losing my Amazon religion @ Stratechery
Why Amazon has no profits (and why it works) @ Benedict-Evans

I won’t go over every statement in those 2 posts but if you are investing or considering trading Amazon, you do need to read both.

The Good

I certainly feel like Benedict-Evans explained it extremely well and perhaps even more clearly is the tweet by legendary VC Marc Andreeson:

Clearly, the reason why Amazon’s net profit has consistently been around $0 is because that is exactly what Jeff Bezos is trying to do.

ycharts_chart (1)

credit: yCharts.com

Spend as much as you can. Why? Because Amazon’s mission requires an incredible amount of resources. What is that “mission”. I’ll agree that it’s not clear and even being the “everything store” seems to under-estimate what Amazon is trying to accomplish. It’s much more than a “store” that can sell you everything.  Jessica Lessin, editor of the Information (a paid but incredibly valuable website) has the best vision that I’ve heard of what Amazon is trying to do: “Amazon-as-city“. Amazon wants to sell more than physical and digital goods and is increasingly moving towards services. The good news is that it’s working as it continues to gain market share and eliminate competition:

yyyy

1Amazon has also been able to make incredible progress when it comes to building these incredible warehouses. This post from Re/code gives a few maps that give you some idea of the progress that’s been made.  Clearly, no other company comes close to what Amazon has been able to build. Even companies such as Walmart that have a much broader physical presence are nowhere near as organized which is showing up in the numbers (no surprise here).

Amazon is taking over markets one at a time and if books are any indication, Amazon will be able to innovate greatly once it reaches that point. Just think of how it changed the whole ebook market, its print-as-you-go initiative, unlimited Kindle subscriptions, etc.

The Bad

I feel like Ben Thompson expressed it very well (again the link) and there are many products or ideas that Amazon is working on that make me scratch my head. Bezos is incredible and it’s a tough position to doubt Amazon’s success but it’s hard to argue that Amazon is not well positioned to compete with players such as Apple and Google when it comes to smartphones and tablets for example. Rumors that Amazon has only sold 35,000 Fire phones are a good way to think about how far the company has to go if it wants to become relevant. I understand why it would be important to dominate mobile but at what cost? How much are these products costing to develop and is it even clear that Amazon has a shot of catching up?

When Amazon spends a billion dollars to buy video gaming video community Twitch, it’s not clear how this will end up profiting Amazon. Yes, it’s a terrific property that Google was looking to buy and yes Amazon would like to have terrific video content to provide on all of its platforms. But what makes Amazon uniquely qualified to run Twitch? It seems like one more distraction.

I was very critical of eBay trying to launch an advertising network and can probably be almost as critical about Amazon’s idea to do the same. Yes, Amazon seems like its slightly better positioned but the strategy remains a mystery to me. Wouldn’t it make more sense to use that billion dollars to build more warehouses?

The Great

All of that being said, in the end I do think that Amazon remains worth the gamble. More transparency would certainly help because I’d like to make sure that most of what the company is reinvesting is being used for warehouses and other strategic purchases to feel even more at ease. But the fact remains that in its core business, Amazon is dominant, faces little to no competition (I’m not buying efforts like Google Shopping Express or ebay same-day shipping to this day) and as long as that trend continues, I do believe the “make no profits” philosophy makes sense. If this is a whole new industry that is being created and that we are still its infancy, it makes a lot of sense to reinvest as much as it possibly can to built the best infrastructure for this new world.

I have not yet found an entry point to my liking but believe me that I will be buying at some point if we see a setback.

Adding Alibaba ($BABA) To The Stocks That I Follow

By: ispeculatornew | Date posted: 09.24.2014 (4:18 am)

$BABAUnless you’ve been living on some other planet, you’ve heard about the very recent Alibaba ($BABA) IPO. I often discuss the ecosystem play where I think owning the US Players ($GOOG, $AAPL, $FB, $AMZN, $MSFT) that dominate the web ecosystem is a great way to play it. Those players dominate to some extent everywhere around the world…almost. There is one major country where they are all but shut out: China. Some of it is caused by their refusal to abide by the rules over there that would be necessary to do business but perhaps more importantly is how different of a market it truly is. They are dominated by 3 very different kind of players (so called BAT players):

-Baidu ($BIDU)
-Alibaba ($BABA)
-Tencent (listed on Hong Kong Exchange)

I could explain what each represent but there has been so much written about them that I fear I would not be adding much value here (try this collection of links). One thing that I’ve been unable to do is buy these 3 stocks to this point. Why? I think this article expresses part of my view:

Alibaba bubble

I’m personally not as concerned about who is benefiting from the IPO but trying to get a good feel for what these companies are up has been extremely challenging. I have found a few good sources of information, try to read the earnings transcripts and I’m hoping that at some point I’ll feel like I have a good enough understanding of the Chinese internet market.

ycharts_chart

What This Also Means

I have not been active on Chinese names lately but I had also been staying out of Yahoo ($YHOO) given its high volatility linked to its Alibaba stake. That will now change and hopefully I can start putting bets on Yahoo in the near term which is extremely interesting. I’m hoping that e can also now finally start getting some answers on how much taxes Yahoo will be paying on future sales of BABA stock.

Have any of you purchased stocks of Alibaba, Tencent or Baidu?

Time To Get Out Of eBay ($EBAY)

By: ispeculatornew | Date posted: 09.15.2014 (3:00 am)

$ebayI’ve written a decent amount about eBay (EBAY) over the years and have generally been a believer. Today, as I take a new look at things, I’m not as convinced. Why? There area few reasons that I’ll get into. But the one thing that seems apparent is that the current web ecosystem plays ($AAPL, $GOOG, $FB, $AMZN, $MSFT) are now very much ready to take on eBay and I don’t think the company has been able to properly prepare itself. It’s not impossible to survive in such a context (Netflix ($NFLX) and Twitter ($TWTR) are 2 great examples but I feel like eBAY is about to run out of time on that front.

Turns Out Carl Icahn Was Right.. But Maybe Too Late

A few months ago, Carl Icahn waged a very public war with eBay’s board, arguing that they were not doing their job and among other things, should spin out Paypal. Even at the time, I had argued that he was right but I’m believing that more and more. The company is reportedly still considering the move but at some point it will be too late. The problem isn’t so much about having both an auction store and the leading internet payment site in the same company. The issue is that Paypal didn’t get the attention it deserved. I’ve personally said for years that I was valuing eBay as a payments company because that was where the growth and the future was.

So what did Paypal need to do? It needed to quickly build a customer and offline business base that were very active, to support developers (what % of apps that you use try to get you to pay through Paypal?), etc. On those fronts, Paypal has made very little progress.

ycharts_chart

What Just Changed?

For years, Google has been trying to build a payments solution, Facebook has built “Facebook credits” while Amazon’s “Payments” has slowly but surely continued to gain ground. But what changed was Apple’s recent “Apple Pay” announcement.

Not only does that confirm how serious Apple is taking “Payments” but it will force competing players to up their game VERY quickly because you can bet that Apple will become a major player in the payments space. Apple Pay will also be used for online payments in apps, websites, etc. That is very serious competition for eBay’s Paypal and you can bet that Amazon, Google and Facebook will react to this news very quickly.

The Game Is Not Lost… YET

Of course, Apple only offers payments to its customer base leaving a majority of users unsupported. It is likely that at least one more player will emerge in this space and eBay could certainly compete. I don’t think its chances are good compared to a few years ago when it was by far the dominant payment player. Paypal has around 150 million active users and Apple will almost reach of that number when its new operating system ships next month:

iphone

credit Statista

 

Apple has also signed up all 3 major credit card issuers as partners, will have hundreds of thousands of retail points from the start, etc. Paypal was apparently pushing to be part of Apple’s payments effort but that has clearly failed.

And again… eBay is not so focused on Paypal. Instead last week it announced:

ebay2

 

 

An Ad Network?!?!? To compete with Apple, Google, Facebook, Twitter and others in an ultra-competitive business where eBay has little to no competitive advantage? I don’t think I need to argue this one. Yes eBay knows a lot about what its users like to shop for… but an ad network??? It’s even worse than the focus on same day shipping. eBay is not a technology company or an ad specialist.. so where does this make sense? Why not focus on the area where the company makes most of its money and is being targeted by the world’s leading ecosystems?

Disclosure: Long eBay (EBAY).. but not for long

Facebook ($FB) Increasingly Looking Like A Strong Ecosystem Play

By: ispeculatornew | Date posted: 09.08.2014 (3:00 am)

$FBAs I’ve stated several times over the past few years, I’m a big believer in the ecosystem play when it comes to technology stocks. I won’t get too much into why but you can certainly look at these posts for a better idea:

Ecosystems rule the world
Have you put your chips on the web ecosystems yet?

Most of us would all agree that Google (GOOG), Apple (AAPL) and Microsoft (MSFT) all qualify as ecosystems. They are at the center of mobile and desktop worlds thanks to their control through the operating systems (Windows, iOS, Android) that has extended over time. I’ve also personally had Amazon (AMZN) and Facebook (FB) into that group which I know many of you disagree with. These companies are increasingly competing in all kinds of different ways but I think it’s safe to say that Facebook is headed in the right direction as I tweeted a few days ago:

In this post, I won’t discuss the valuation or revenue expectations simply because I’ve done so in the recent past and I’m also more focused on explaining why I think Facebook is an ecosystem play.

The Current Environment

In an increasingly mobile world, it’s all about dominating the app landscape. You’d rightfully assume that players which have their own O/S have an easier path to promoting their own apps and that’s certainly true but Facebook has been able to achieve incredible numbers.

-The Core Facebook app remains the most used app by a significant portion of users. It is the only non-Google app to reach 1 billion installs on the Google Play app store.
-Facebook messenger is currently the most downloaded app on Android and iOS
-WhatsApp has confirmed it now has over 600 million users, with Zuckerberg saying it could end up reaching several billion users
-For all of the talk of “youngsters moving away from Facebook”, they have been moving towards a few apps, Instagram, owned by Facebook is arguably the top one.
-It continues to innovate with new apps such as Hyperlapse and Paper.

Yes, Facebook lacks an operating system and did try its own version with Facebook home but that was a failure. I do personally love to see Facebook being so aggressive and while they have and will continue to fail, overall the growth has been nothing short of spectacular, both in terms of users and revenues:

dau

revs

credits: Facebook IR

 The Coming Years

If the “desktop era” was the first big step in the “Social Web”, then I think it’s fair to say that mobile is the current era. In most of the world, that has translated into big companies such as Google, Apple, Microsoft and others unbundling their core apps into different “single purpose” ones. I’m not sure if that model will remain so or if the “China model” where a few apps make it possible to do just about anything dominate. If that ends up happening, I think Facebook has a great position through its core app, but also its messenger plays.  It is very plausible that in the next “web”, search will no longer be at the “center” but it could be other core functions such as maps or messaging.

If we’re taking an even longer term view, the recent purchase of Oculus Rift by Facebook certainly gives it a leg up in trying to compete with Google in terms of artificial intelligence.

What Are Your Thoughts On Facebook As A Dominant “Ecosystem”?

Disclosure: Long Facebook (FB)

All Aboard On TripAdvisor (TRIP)

By: ispeculatornew | Date posted: 08.13.2014 (3:00 am)

$TRIP

I had hinted this might be coming and finally ended up pulling the trigger on what I first announced via Twitter:

For those that are new, let me do a quick recap of my investing strategy. The core of my portfolio is built on a passive income (dividend portfolio) and index-based investing (ETF portfolio). Then, I’ve started investing more money over the years into riskier strategies, mostly related to tech stocks. Why? Because it is the sector I know most about, enjoy following, and get the best feeling about. There are also many different stocks that can be traded.

My most active strategy is my long and short portfolio, which has done very well over the years, especially this year. It’s something I enjoy a great deal and have done well with, but it’s certainly volatile and short positions can cause bad surprises.

Once in a while, I take what I call a “long term speculative position.” Those are high conviction picks where I believe the upside potential is very significant compared to the downside risk. I tend to invest a significant amount (from my perspective) in those stocks with a multi-year horizon (unless something changes significantly).

-In 2012, I purchased Facebook (FB) +262%
-In 2013, I purchased Apple (AAPL) +24%

Both have done extremely well and I’m hoping this one will do the same.

Why I’m Buying TripAdvisor (TRIP)

In what I often describe as the “ecosystem” world, very few businesses are safe from giants such as Google (GOOG), Apple (AAPL), Facebook (FB), Microsoft (MSFT), and Amazon (AMZN). I’d argue that Netflix (NFLX) has positioned itself to thrive and I think the same can be said for TripAdvisor. There are hundreds of different web properties that focus on travel. What sets TripAdvisor apart is its brand and, more importantly, its community. Members are able to leave reviews, post photos, and add information, and that ends up being a game changer.

Every website tries to get the best inventory, the best features, the best prices, etc. All of those can be duplicated by competitors, which will always be a challenge for companies such as Expedia (EXPE), Orbitz (OWW), and others. I’d argue that building a community is much more difficult to do and will give TRIP a leg up for many more years. It has also helped TRIP become a platform where consumers and business owners can interact.

It’s Not All About Advertising

Yes, Tripadvisor currently relies mostly on advertising to support its business, but I’d argue that it is well positioned to build a relationship with business owners all around the world. At the start, that relationship might simply be about providing information, but it could and will become much more. If TRIP can help those businesses attract more consumers and facilitate transactions, that will end up generating significant cash flows.

revs

image credit: TRIP IR

I personally think that revenues could then accelerate in a similar way to what Facebook has achieved in the past couple of years:

ycharts_chart

 

Credit: YCharts

Valuation

I’ve been looking at TRIP for some time, but the valuation looked very expensive, so I’m finally getting in after a slight miss in its latest earnings that sent the stock down.

When I look at where TRIP is, I think its growth will remain steady for a few years as it continues to bring more users and activity. Then, when profitability becomes the main focus, I believe revenue and earnings growth will actually accelerate.

Think the focus on traffic is paying off? Just look at this chart from Google Trends:

 

trend2

trend1

 

credit: Google Trends

In the end, I think that the Travel industry is huge, will continue to move towards the web and that TripAdvisor is by far the best positioned to profit from it. With expectations of 20%+ growth in revenues for many years and growth acceleration once its focus shifts to revenues, which I think is still a few years down the line.  I’d love to hear your thoughts on TRIP, think this one can do as well?

Disclaimer: Long TripAdvisor (TRIP)

Facebook (FB) Reports Impressive Results But It’s Only Getting Started

By: ispeculatornew | Date posted: 07.24.2014 (3:00 am)

$FBI’ve obviously been writing about Facebook for quite some time on this blog and while I’ve been very fortunate in how things have played out, I do still think it’s a fascinating story no matter how you look at it. At the time of the IPO, I strongly believed Facebook was a great value at those levels but I was obviously in the minority and since I tend to stay away from newly turned public companies for the first few months (I hate the initial volatility), I did end up buying a few months later. As you can imagine, if I thought $38/share was a value, getting in under $20 was a steal. There was risk involved (there always is), but in terms of upside vs downside risk, it was a no-brainer.

Much of the criticism of Facebook’s valuation was based on:

Doubts about Facebook’s ability to remain the dominant social network (FB = MySpace)
The limited available growth in terms of users (if FB growth = user growth, then how much further can you get past 1B? and more importantly, how valuable in the short term is that 2nd billion users?)
Revenues: If mobile was going to mean less of those big flashy banner ads, then was Facebook doomed when internet moved to mobile?

I personally discounted the last 2 arguments and believed the first one was possible, especially if Facebook made some big mistakes, but unlikely. Over time, more concerns have been added:

-Younger generation moving away from Facebook
-Users splitting their attention between an increasingly large number of social services
-etc

That being said, by all accounts Facebook has been delivering in an incredible way in the past few quarters. Just look at growth in users, revenues and earnings:

DAU

REVS

EPS

 

credit: FB earnings slides

When I look at Facebook’s stock near the $75 level (point it reached yesterday in after hours trading), I do continue to see tremendous upside. Why? In my opinion, there are 5 clear steps for Facebook and while all of these will be on-going, I’d say Facebook is barely into step #2:

Step #1: Building and Never Stop Improving and Building: Clearly, Facebook already has the top social network around but has continued to build on it both through its own efforts (improving core Facebook, messenger app, etc) but also through acquisitions such as Instagram, WhatsApp, etc.

Step #2: Build an advertising based business: Facebook started off with those flashy banners but has moved beyond those to news within the newsfeed, app installs, etc. They mentioned on yesterday’s call that in many countries the ads are being perceived as nearly the same quality as the other content. Clearly, there is still a long way ahead but Facebook is making great progress as we can see in their impressive growth. I believe that will continue but perhaps even more important is Facebook’s ability to sell ads outside its walls thanks to its growing relationship with other app developers, its integration of Liverail, etc. Facebook is only getting started here.

Step #3: Other revenue efforts: As of right now, efforts such as payments, ecommerce and subscriptions are minimal as they should be. But I strongly believe that these will represent a huge stepping stone in the coming decade. There are much bigger gains in advertising right now but as the internet continues to mature, as smartphones spread and as Facebook’s ecosystem and the outside world adapts, revenue opportunities will emerge and I think this will be a focus in a few years.

Step #4: Full integration: I’m clearly not a believer in Facebook integrating Instagram, WhatsApp or other “products” into Facebook but if Facebook does make progress on elements such as payments, advertising, etc, it will clearly be able to slowly integrate some of those features into those products. There is no reason to rush this. Those products are not as mature and the focus is on step #1 but I do think they will reach that point in the future.

Step #5: Future Platforms: Mark Zuckerberg discussed this a bit in yesterday’s call. Clearly, while Facebook has what I consider to be an ecosystem, it does not control things the same way that Apple and Google do because those 2 players own the dominant mobile O/S. One day, as we have started moving away from desktop computers, smartphones will start losing market share to newer mediums and Facebook believes the Oculus Rift purchase will help Facebook be in a better position in the next “platform” than it is on desktop or mobile platforms.

So yes, Facebook is just getting started and the upside remains very significant in a market where most see Facebook’s end game as advertising.

FB Chart

FB data by YCharts

Disclaimer: Long Facebook (FB)

 

Looking For An Entry Point For Twitter ($TWTR)

By: ispeculatornew | Date posted: 07.07.2014 (3:00 am)

51vLqoKisfL__SL250_Among the tech stocks that I follow, there are a few that I own as long term positions ($FB, $AAPL), others that I’d never own (stocks like $P, $TZOO, etc) and several others that I’d love to eventually own but am tracking some metrics and the pricing in order to determine the right time to get in. I’ve talked about my desire to buy stocks like Tripadvisor ($TRIP), LinkedIn ($LNKD) and Amazon ($AMZN) but things have not looked right. The same could probably be said about Twitter. Why?

I’m a big believer in their product, what they’re trying to do and their potential. The fact that it’s probably the app I use the most on my iPhone is also a reason of course and hopefully means I have a good understanding of the product’s potential. I’m also currently listening to “Hatching Twitter” audiobook which also gives me a “founders/management perspective”. The big problem of course in buying Twitter stock from the very start has been its valuation which was well beyond what I was willing to pay for. Over the few months after the IPO, the stock got even more expensive before coming down closer to reality.

ycharts_chart

$TWTRIs Now The Right Time To Buy?

First, I’ll start off by saying a few of the reasons why I love Twitter as a company from an investor perspective:

Established and “different” social player. There are many different social companies. Facebook is the leader of course but Twitter and LinkedIn are the other parts of the “big 3”. Snapchat, Pinterest, Tumblr, Flickr, Google+ are also important players but I don’t think anyone would question that both in the US and in terms of global presence, Twitter is a terrific player. It is also different from Facebook in a way that means they can and do co-exist. Yes, they both have gone at each other in many different ways but overall, they co-exist as they provide very different offerings.

Advertising potential: There is no doubt that Twitter knows its users well. By knowing who they follow, what they read and what they write, they’re able to get enough data to compete with every other player in terms of commanding very competitive rates.

Incredible potential: You would have a hard time arguing that Twitter could not also reach a billion users. It connects users to friends and family but also to brands, services, celebrities, etc.

However, there are also elements I don’t like:

Slow growth: You’d think that given its much smaller user base, Twitter would be growing much faster yet it continues to lag. Part of it is the consistent problem of explaining to potential users what Twitter is and how to use it. It’s very disappointing that after all these years, Twitter remains unable to explain this in a clear way.

Beyond Twitter?: I see a hundred different things that Facebook could do to expand and Mark Zuckerberg continues to take its company down new roads successfully through acquisitions, new services, etc. Twitter on the other hand isn’t so exciting from that perspective. I have trouble seeing Twitter becoming a platform for several other services or even becoming a viable ecosystem.

User participation: Another issue that Twitter has been dealing with is the lack of user participation. Most users do not produce or upload any content to Twitter, they simply read.

Valuation

Of course, as is always the case, it comes down to valuations. I think Facebook is a great comparable so I’ll use that comparison:

First off, the main numbers:

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueEarningsMkt CapRevenue/Share
TWTRTwitter Inc41.33N/A155.86-34.38109.793.284.988/15/201424.74B3.51
FBFacebook Inc66.2961.8136.2521.5954.694.636.537/23/2014170.53B3.25

Revenue growth is accelerating to some extent which is positive:

TWTR Revenue (Quarterly YoY Growth) Chart

TWTR Revenue (Quarterly YoY Growth) data by YCharts

Twitter remains a money-losing business but the arrow is clearly in the right direction here:

TWTR EPS Diluted (Quarterly) Chart

TWTR EPS Diluted (Quarterly) data by YCharts

In all honesty, I do think I’m close to finding the valuation attractive enough. A combination of improving metrics and declining stock price have certainly helped TWTR become a better buy. I could see myself buying later this year, especially if we get a better sense of when TWTR will become profitable and what its plans for expansion (both its current service and future ones) will look like.

Are any of you TWTR investors or considering making the move?

I Can’t Afford To Take A Shot On Amazon ($AMZN) At This Point

By: ispeculatornew | Date posted: 06.23.2014 (3:00 am)

$AMZNI’ve written about Amazon dozens of times on this blog and will certainly keep trading it for long & short stock picks but despite my continued attempts to find a good buying opportunity as a long term speculative pick, I just don’t see it happening anytime soon. I admire almost everything about Amazon, and over the years have been gradually increasing the proportion of my spending that goes to the Bezos controlled conglomerate. Of course, most of that is irrelevant when I try to determine if I’ll buy a stock or not. Yes, using the service helps me understand it better and that makes it more likely that I will buy. But it’s certainly not enough for me to pull the trigger.

The Big Problem

If you’re Jeff Bezos, an Amazon employee or customer, you’ve gotta love what the company is doing. Every month, it spends hundreds of millions to improve its infrastructure, services and goods. Sometimes that means building a few warehouses, building a world class cloud infrastructure, starting new initiatives such as its new Fire Phone, or testing things like Amazon Fresh, etc. Amazon seems determined to keep reinvesting until it reaches that “critical” point.

What Is That Critical Point?

In the past few days, I’ve been thinking about one Amazon initiative that seems to give us a good look into what the company is trying to build; Amazon Fresh. The short story is that it is starting to offer grocery delivery. That makes sense in so many different ways. Groceries are one if not the most important retail sector and one that has seen little to no disruption from technology. Clearly, there is a big opportunity that several companies are looking to get into.

$instacartInstacart is a startup that makes it possible for customers to order grocery which can be purchased and delivered by personal shoppers who get paid to perform the service. It is the “Uber” of groceries. You can imagine that it is a challenge to get started such a service because you need to get both demand from customers but also people that will perform the task. It’s not easy to do both at the same time. Try finding customers when there is little to no service or getting “shoppers” when no orders are coming in. However, when it does work, the investment required is very small.

amznAmazon is approaching the problem in its usual way of course which means massive investments. Amazon is trying to build warehouses to store food, get orders that can be delivered either through its existing distribution or what Amazon has started; its own trucks. The cost of trying this in parts of Seattle are important but Amazon can clearly afford those. Can Amazon afford to build this across the country and around the world? Clearly not at this point. Yes, once that happens, Amazon would be able to get much higher margins, etc. How long could it take Amazon to get there assuming that is its intention? 10 years? 20 years? Longer?

How about same day delivery? Yes, drones might help at some point, but what is the shorter term goal? This story is repeating itself over and over. Yes, Amazon is slowly taking over the world. Sales continue to increase with no end in sight.

ycharts_chart

That is not translating into profits though as you’ve heard over and over:

ycharts_chart (1)

Yes, Amazon is a low margin business and is never going to make 20-30% profit margins. There is a difference between 20-30% and 0% though…

ycharts_chart (2)

The big issue here is not that Amazon can’t generate profits. I’m convinced it could decide to turn the switch at any moment. That is not what Jeff Bezos wants to do though. He’s probably right as well because while the internet isn’t a “one winner take all” game, it certainly is closer to that than what you’d see offline. Just look at what Amazon is able to pull off with its dominant book market share. But as long as Amazon is focused almost entirely on growing and improving its infrastructure, profits will remain close to $0. No matter how much faster sales increase, Bezos will simply use that money to grow everything else more quickly. With no end in sight, it could take several decades before Amazon can start reducing its infrastructure spending.

Can’t Blame Bezos

I’d probably be the last guy to blame Bezos. I think the main problem of most public companies and governments is there singular short term focus and if you’re using a 20-30 year horizon, sacrificing profitability in order to build what is already the top operation is likely worth it. At some point though, investors will get tired of the profits that never come. Amazon will likely be one of the hardest hit stocks the next time a stock market crash happens. That is exactly when I’ll get in. There’s more than enough time for that to happen, I’m guessing we’ll see a few crashes in the next 20-30 years!

Disclaimer: No positions on Amazon (AMZN)

Amazon ($AMZN) Ventures Into Payments, Can It Succeed?

By: ispeculatornew | Date posted: 06.12.2014 (3:00 am)

amzn`As one of the key ecosystem players out there, Amazon ($AMZN) is in a position to launch products that can successfully compete against others out there mostly thanks to its existing infrastructure.  One of the key features that all ecosystems have or will end up battling for is payments. I don’t think I need to explain why. Payments are most likely the most lucrative business in a world where everything is going digital. It’s not clear if there will be one winner but in any case, even if it ends up being a world with several dominant players, it is an area that all ecosystem players will end up fighting for.

Yes, that means Amazon has a better shot at competing against established players such as eBay’s ($EBAY) Paypal but also newer players such as Stripe. Up to this point, Google has already worked on a solution (Google wallets) and Apple is rumoured to be working on a solution. Facebook ($FB), like Google has been trying but has not succeeded to this point. They each have their own unique advantages and for Amazon, one of they key aspects of course is its number of active customers that each have a current credit card on the system.

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One Big Issue That Amazon Payments Needs To Address

Amazon is of course targeting 2 main types of payment customers; personal and businesses. Everything does look promising but one key missing feature is the lack of international support. I certainly understand that it will be a big challenge to quickly scale up in a world where each country has its own regulations and banks but it’s the only way that Amazon Payments can succeed. One of Paypal’s most important features is the fact that virtually everyone in the world can use it. In our inter-connected world, the majority of business and transactions are done internationally and it will be very difficult for businesses to justify moving to Amazon when they can only do a portion of their transactions.

Impact On The Stock

In the short term, there is no impact. We all knew that Amazon, like other ecosystem players would be launching a payments solution. I will however be closely following the progress of this platform and think that it could end up having a very significant impact on Amazon in the coming months/years. It is certainly positive for Amazon to come out with this launch so early and it gives

Disclosure: No position on Amazon (AMZN)

Google’s Lack Of Focus.. A Major Source Of Concern

By: ispeculatornew | Date posted: 06.05.2014 (3:00 am)
$googI’ve had a lot of trouble getting a clear view of Google in terms of where it’s headed. In terms of products and from a user perspective, it’s a lot easier to understand. Google is trying to be self-sufficient. I wrote about this when I discussed living in a Google world.
Eventually, you could get energy from Google that would you connect to your Google fiber or Google balloons in order to get online. You could do it through your Nexus phone/tablet, a Google tv, etc.
Once you’re online, you could:
-search the web with google
-get your email in gmail
-view videos on Youtube
-etc
In fact, Google has since confirmed it was going to build its own cars so really, at some point, you would end up using Google for a large portion of your life.
Apple also announced major initiatives this week related to a smart home, a health platform in addition to CarPlay. So you might think that Apple ($AAPL) and Google are on path for a big collision.

The Biggest Difference Between Apple and Google

There is one key difference in my opinion though.
Apple is building platforms:
iTunes: Apple has partnerships with music labels, movie studios, app makers, etc
CarPlay: Apple has partnered with car makers from all around the world
HealthKit: Apple will make it easier for outside companies to build products that integrate into HealthKit
HomeKit: The smart home is coming and Apple wants to be in the middle of it by building an infrastructure
Google is building products:
-building cars
-purchased Nest which builds thermostats and fire alarms
-developing Google glasses
-providing internet to the world (fiber, etc)
-buying robot making companies
-etc

You get the picture.

Apple is building a platform and concentrating its energy on what it considers the “key” features such as some hardware (iPhone, iPad, macbooks, etc) and specific software (O/S, maps, messenging, etc).
Google is trying to do (nearly) everything itself. Even in areas where it needs others, such as bringing a Youtube streaming product to the market, Google has been unable to partner with music labels in the same way that Apple has so far been able to do it.
Time will tell which works best and you could certainly argue that in terms of maps, Apple ended up paying for relying on a partner. That is likely to happen again.
I’d still  much rather own a company that has a clear focus on what it’s trying to accomplish and is able to leverage its “dominant” ecosystem position rather than a company that operates as if it wanted to become self-sufficient.
Disclosure: Long Apple ($AAPL)