Amazon stock is up $6 in pre-market trading because
it’s…”Prime Day!” But what does this really mean? It means AMZN will burn
more cash selling and fulfilling commodity products with free 2-day shipping.
But it will likely get another $20 pop in its stock because “Prime Day”
revenues today will grow X% over 2016’s “Prime Day.”
Am I the only person in the world who has figured
out that AMZN’s e-commerce operating income margin is nearly zero? Does anyone besides me know that AMZN’s non-North American
e-commerce business loses money on an operating basis? The numbers are posted
in its 10-Q every quarter. North America and ROW combined last quarter AMZN’s
e-commerce business did a whopping 0.3% operating margin. At least that’s
0.3 higher than Blutarsky’s grade point average in “Animal House.” (Short Seller’s Journal subscribers know this because I show them the numbers – Wall Street’s
institutional investor clients do not know this because these market
“professionals” can’t be bothered with doing actual research).
AMZN has already been crowned as the new “grocery killer”
by the Jim Cramers of the world. It’s amazing that he can make this assertion
without having ever looked at AMZN’s real numbers. In fitting irony, the
opposite of Cramer’s assertion is the truth based on real world numbers.
Walmart, Target, Bed Bath etc have 3-5% operating margins that they can
“play” with to attack AMZN’s e-commerce model.
Is AMZN “killing” brick-n-mortar or are the
healthy brick-n-mortars going after AMZN’s e-commerce business?
Go onto Walmart’s website. It’s now offering 2-day free
shipping on millions of SKU’s without any requirement to pay money up front
to join a “club.” I was wondering by Bezos decided to offer low-income people
a big discount on Prime memberships. He knew Walmart was going to offer 2-day
free shipping to that retail demographic without a “club membership”
requirement. Guess what Jeff? WMT can afford to ship for free. Your
company cannot. It doesn’t cost much extra for WMT to offer 2-day
shipping because it can fulfill most orders from store inventory in the same
county or city or neighborhood from which the order was placed. AMZN can not
do that.
Walmart is more than 3x the size of AMZN and it is many
times more profitable. BBBY’s e-commerce business last quarter grew 20% year
over year. I got news for Cramer and all the robotic Wall St. analysts, and the
lemmings who slavishly worship both: Walmart, Best Buy, BBBY and TGT have
room to subsidize sales even more and still operate profitably. AMZN does
not. If you don’t believe me then look at the SEC-filed number yourself.
Stay tuned…there’s more…two major category-killer
discount grocery chains from Europe are expanding aggressively in the United
States and Microsoft is cutting back on certain of its operations to focus on
its cloud enterprise business. AMZN’s AWS business will be attacked
aggressively by MSFT, ORCL, GOOG and IBM. The price of cloud computing will
eventually approach zero. Did anyone out there realize that AMZN’s cloud
margins decline every quarter?
Happy Amazon Prime Day! AMZN will lose money on
just about every item sold today. I guess that’s a great reason to
celebrate…
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Dave Kranzler spent many years working in various
Wall Street jobs. After business school, he traded junk bonds for a large
bank. He has an MBA from the University of Chicago, with a concentration in
accounting and finance, and graduated Oberlin College with majors in
Economics and English. Dave has nearly thirty years of experience in
studying, researching, analyzing and investing in the financial markets.
Currently he co-manages a precious metals and mining stock investment fund
in Denver and publishes the Mining Stock and Short Seller Journals. Contact
Dave at dkranzler62@gmail.com.
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