Here's an interesting story about how Amazon's Alexa is influencing the evolution of computing.http://www.vox.com/new-money/2017/1/6/14186076/amazons-alexa...It's interesting to see the human-machine interface evolve to widely include responses to verbal commands. Reminds me of Hal in "2001—A Space Odyssey."It's also interesting to witness the fierce competition among technology biggies Google, Amazon, Apple and Microsoft. Fundamentally valuable applications often appear to be zero-sum games, even as applications of evolving technology are bounded only by imagination. It's also interesting that IBM isn't mentioned. Watson appears to be out of the equation here.Tom
It's also interesting that IBM isn't mentioned.Does IBM have a consumer interface? I think they gave it up when they abandoned the PC. Do they have a tablet? A cellphone?They deal with commercial and industrial clients. Perhaps their expertise can be brought to the consumer market but if so likely with someone elses name on it.Jeff Bezos and Amazon seem to be visionaries when it comes to retail. His consumer interfaces are popular and industry leaders.Steve Jobs saw a need for that connection and followed into Apple stores. But that is a tiny fraction compared to Amazon.Many famous computer companies have no consumer interface. They are at the mercy of the providers that have it.
Greetings,Thanks for bringing this up here Tom. I’m pretty sure we will see some amazing wealth-creating companies come out of this whole technology niche. Might not ever be what local denizens view as value but I’m listening. It's interesting to see the human-machine interface evolve to widely include responses to verbal commands. Reminds me of Hal in "2001—A Space Odyssey."As I’m sure you are aware this capability has been around for a long time. Call centers, medical electronic records, automobile systems, and many others have these actually implemented. Just ask Kit about Nuance if you have the patience. The real question is how to make money with learning systems. It's also interesting to witness the fierce competition among technology biggies Google, Amazon, Apple and Microsoft. Fundamentally valuable applications often appear to be zero-sum games, even as applications of evolving technology are bounded only by imagination. I basically see zero-sum here so far, agreed. These folks are focused on dealing with their customers. A noble endeavor no doubt, but not likely a major profit generator. One will get a lead and that will change and most likely become a money sink as they chase each other. It's also interesting that IBM isn't mentioned. Watson appears to be out of the equation here.OK. This is where you can see the bifurcation of the evolving AI market. IBM/partners are aiming for a higher level of sophistication in their capabilities. We are talking about taking full-on genomic data plus all historical recorded information, plus,plus,plus. And making a diagnosis that is beyond what most docs could come up with. Same could happen with many other areas. This is a nascent field and one to keep eyes on. Many tremendous companies have been created out of such opportunities.Regards,Stan
I basically see zero-sum here so far, agreed. A "winner take all game" or an "increasing returns" technology. What happens is that the winner gets more than half the market like Google has with search and Microsoft has with Windows. Catch-up is incredibly difficult. As an investor I rule it out.The reason Alexa instead of Watson is the winner is that disruptive technology comes in from the bottom, not the top. It has to be very cheap and just good enough. Watson is magnificent and way too expensive. I find it hard to imagine hiring Watson to turn off the lights and opening garage doors. While I don't know this I imagine that Watson was conceived as "Big Iron" instead of as distributed internet of things. If you don't visualize a mass market you don't design cheap technology that will only be bought by one hundred customers.It wasn't until last year that I understood Bezos and started buying AMZN.Denny Schlesinger
It wasn't until last year that I understood Bezos and started buying AMZN.There’s no argument that Amazon has not been innovative, disruptive, and hugely successful in terms of embedding a range of disparate, and sometimes disruptive and game changing, products and services throughout multiple marketplaces. Surely finally the pump is primed for significant and growing profits to accrue? In business terms Amazon has been hugely successful and innovative. What investor wouldn’t want a piece of that pie, however small? Yet, over the years investors’ stake in earnings have been non existent to microscopic. Investors bought the story, not the financial reality. Amazon wasn’t about to go broke, but rather it plowed back all it earned to maintain razor thin, or even nonexistent, profit margins and to fund research and development. Fine for the company, and perhaps great for its future, but at what price for shareholders?As yet, at no price for the shareholder; quite the opposite: outsized profits for longterm shareholder. Who wishes they had bought Amazon shares decades ago, but didn’t, almost everyone. There is that saying about “the exception to the rule.” As yet, Amazon is a case in point. How many other companies have managed to go for so long, with their stock prices so high in relation to company earnings, without the stock crashing? I can’t think of any, not one. Given that it never happens, unless Amazon’s stock is unique, then eventually it’s in for a major “adjustment.” The company is more profitable than ever but the most optimistic forward P/E ratio is close to triple digits. (Who was it who said that every company’s stock eventually has a P/E ratio of 15, at least for a moment? —I don’t know).It’s perhaps ironic to think that the party might just be starting for the company’s profits and just ending for its stockholders. Frankly both could be true, though Amazon’s stock could continue on its upward path seemingly indefinitely. It’s a strange and unsettling world we live in an this is the least of it.kelbon
I can’t think of any, not one. All that proves is a lack of imagination but you are in excellent company:"I think there is a world market for maybe five computers."Thomas Watson, president of IBM, 1943"Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night."Darryl Zanuck, executive at 20th Century Fox, 1946"There is no reason anyone would want a computer in their home."Ken Olsen, founder of Digital Equipment Corporation, 1977"Almost all of the many predictions now being made about 1996 hinge on the Internet's continuing exponential growth. But I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse."Robert Metcalfe, founder of 3Com, 1995"Apple is already dead."Nathan Myhrvold, former Microsoft CTO, 1997"Two years from now, spam will be solved."Bill Gates, founder of Microsoft, 2004The 7 Worst Tech Predictions of All Timehttp://www.pcworld.com/article/155984/worst_tech_predictions...
All that proves is a lack of imagination but you are in excellent companyI am in excellent company, because I doubt anyone will come up with a stock ("I can’t think of any, not one.") that was so overpriced—in relation to company earnings—for so long as Amazon. Rather than come up with even one other stock that remanded as stratospherically high for as long as Amazon has, you present a list of people who made statements that proved to be massively wrong on other subjects. I don’t see the point of your response, let alone its relevance.kelbon
I don’t see the point of your response, let alone its relevance. I guess you don't.
One could speculate that AMZN is a trojan horse, designed to destroy capitalism. It enters one business area after another, making scant profits, undercutting and destroying the competition. It wins since its investors do not demand profits. First books, music, groceries, delivery, the cloud, AI etc. etc. until it is the only company remaining. It becomes the state and capitalism is dead....and the Washington Post becomes TASS.sw
I guess you don't. Perhaps you didn’t understand my original post? (Though I don’t think it hard to understand…)Put another, and simpler, way: Amazon is a great, successful, and game changing company. Yet, its stock is hugely expensive as a multiple of Amazon’s earnings and it has been for a long time. I don’t know of a stock that hasn’t eventually crashed from such heights to more reasonably reflect the underlying company’s earnings. Given this my intent was: if you invest (or speculate) in Amazon stock, be careful out there.kelbon
Given this my intent was: if you invest (or speculate) in Amazon stock, be careful out there.kelbon Gee, that's sweet of you! But patronizing.
Amazon is a great, successful, and game changing company. Yet, its stock is hugely expensive as a multiple of Amazon’s earnings and it has been for a long time.I think we all realize that Jeff Bezos is a unique kind of manager. He has good business skills coupled with strong entrepreneurial skills. He has many good ideas (or leads a very good team) and knows how to test new ideas and bring good ones to market.Some succeed and others fail, but he seems good at pursuing the winners and maintaining his leadership vs the competition.The bottom line is he consistently invests all funds available in growing the business. He does not bring many profits to the bottom line. So PE is high.People who own the stock accept this. They apparently believe in Jeff's vision and are willing to let him pursue it to the fullest.No this is not a traditional company. It's a unique entity.
One could speculate that AMZN is a trojan horse, designed to destroy capitalism. One could also have said that about Henry Ford, who took a high profit, low volume business (car manufacturing) and turned it the other way.Year after year he lowered margins in a relentless effort to out produce the rest of the industry combined. Indeed, there were some years when there were no profits at all: Ford was reinvesting in his own component manfacturing sub-companies (prior to that it was common to buy components fron independent suppliers) or reinvesting everything in things like the Rouge plant, or Fordlandia, or whatever.(He also went into unrelated and unnecessary businesses like newspaper publishing, landlording, security agencies, and more.)I'm fairly sure nobody is daft enough to think that Henry Ford was a "trojan horse, designed to destroy capitalism". Well, almost nobody.
No this is not a traditional company. It's a unique entity. In this I think we are all in agreement. Where we differ is in how we put a fair price on it. If you approach Amazon from a traditional value investor point of view using traditional Graham and Dodd metrics, the result you get is that AMZN, the stock, is too expensive to buy. End of story. There is no need to orate sermons about it.On the other hand, if you look at what the stock has done, it will be 20 years since IPO in May, you are looking at a historic CAGR of 29%. It's a darn shame to miss such opportunities. The question becomes, how do you approach it with a reasonable margin of safety? Since traditional valuation is useless, you have to take the trader/speculator route.I've been an Amazon customer for over 15 years but I didn't buy the stock until last year because I could not find a way to justify it. I happen to have an amateur's interest in rocketry. At first there was only NASA but in time there were several private rocket companies competing for business (another industry not yet fit for value investors). What caught my attention was that Bezos' approach seemed to be the most cost effective. This got me interested in Bezos, the businessman, and I watched various YouTube presentations. In one of them Bezos explains in great detail how Amazon was conceived, how it grew and the business model that drove the first 20 years. My background is in information technology and I was a management consultant during ten years so I was on familiar ground. The man made 100% perfect sense. I came to trust Bezos in a way that I don't trust any of the other rockstar business people from Tesla, Google, Microsoft, FaceBook, or Apple.This is going to get too long if I go into how Amazon is testing waters, diversifying, and entering new markets. In summary, Bezos is executing brilliantly.That still leaves the problem of how to invest in AMZN. The first fact one has to keep in mind is that a stock like AMZN can drop by half very quickly. If you can't live with that, forget AMZN. But it also means that one can't (or shouldn't) buy a full position all at once. Instead I'm planing to ease into a full position over a period of a year or more. Over nine months I have accumulated less than half a position with an IRR of 27% as of last Friday. If the current rise continues I plan to take some profits to drive down my average cost.Denny Schlesinger
Gee, that's sweet of you! But patronizing. Perhaps you have gathered (or not) that when I comment on a post I'm not exclusively responding to the original poster? But rather also writing with others following the conversation in mind, where there is a range of sophistication and knowledge, not to mention openness. Broad sweeps rather than pin-point targeting. No it's not patronizing…kelbon
Bringing the thread back to Tom's OP...You can now ask Alexa to order food delivery in Chicago Jan 9, 2017, 1:00am CSTJim DallkeNow getting food delivered in Chicago just takes a quick question to Alexa.Amazon.com announced Thursday that Prime members in 20 cities can voice-order their next meal through Amazon Restaurants on their Echo and Echo Dot devices.By adding the new Alexa Skill, Echo users can simply say “Alexa, order from Amazon Restaurants,” and have a meal delivered in less than an hour. http://www.bizjournals.com/chicago/news/2017/01/09/you-can-n...How do you put a price tag on this new service, on this new Alexa Skill? There are a couple of threads live on Artificial Intelligence (AI) at TMF. One idea -- that I subscribe to -- is that users of AI will be the beneficiaries of AI, not necessarily the purveyors of the technology. Amazon is just one example of using AI to grow your business. But it is impossible to put a valuation on this innovation, the mechanics of the process are just too complex and unpredictable. You won't find the answer in Graham and Dodd. Is that a good reason to avoid investing in the users of this innovation?What might be inappropriate is to bring up growth stories in a value board. Maybe the NPI board is a better place for it.Denny Schlesinger
The bottom line is he consistently invests all funds available in growing the business. He does not bring many profits to the bottom line. So PE is high.and just think if those retained earnings end up being granted the same PE as the rest of the equity capital base: it would add one hundred fold as much equity value increase (given a forward PE that look to be about 100). hard to prefer a dividend that takes money OUT of the equity base over that!
Enjoy your 3%/year share dilution too. Wonder if that helps the cash flow.
and just think if those retained earnings end up being granted the same PE as the rest of the equity capital baseI’m not entirely sure what is intended here.Just think, if a man makes a million dollars and doesn’t have to pay his expenses (of $999,000) then how much more well off he would be! Amazon has scant, if any, retained earnings, though it might appear that they have some given a quick glance at the cash-flow statement.However, like many other companies, stock options appear in Amazon’s plus column rather than the minus column. In reality stock options are an expense, not an asset. Add the expense of stock options, debt repayment, leases, capital expenditure at al and almost all the money Amazon generates goes out the door again.For companies; for households; for individuals, if they spend as much money as they earn, in financial terms their retained earnings are zilch. This, of course, does not mean that they don't have other tangible, and intangible, assets.But, in most cases, when it comes to the worth of a public company, earnings matter — a lot.kelbon
someone mentioned 3% dilution rate. Where did that number come from?1/1/13 454M shares1/1/14 459M shares1/1/15 465M sharesI think the annual dilution rate is ~1.5%.However, like many other companies, stock options appear in Amazon’s plus column rather than the minus column. In reality stock options are an expense, not an asset.I am looking at the 12/31/15 10K, 'Statement of Operations,' and it appears that Stock Option Compensation is being treated correctly as an expense.Please explain.
Please explain.I looked at Amazon’s Cash-flow statement at Morningstar.http://financials.morningstar.com/cash-flow/cf.html?t=AMZN&a...Cash Flows From Operations, fifth line item down: Stock based compensation.Then after your post I looked at the 10K (Page 38) It’s the same exact number. Stock-based compensation 2,119 For those who don’t know, figures in parenthesis are an expense: a minus amount. Those without parenthesis are a gain: a plus amount. For the stock options to be expensed correctly they would have to appear thus:Stock-based compensation (2,119)Further they would have to be subtracted from the total—Net cash provided by (used in) operating activities)—not added.kelbon
Stock-based compensation 2,119
Stock-based compensation (2,119)
Hi kelbon,Further they would have to be subtracted from the total—Net cash provided by (used in) operating activities)—not added.If I'm following what you are saying, I don't think this is correct. The stock based compensation is expensed on the income statement using Black-Scholes under the expense category appropriate for whoever they were awarded to. Since they are non-cash in nature, they are added back as a positive amount on the cash-flow statement to keep the cash usage correct. If I've missed your point, I apologize.Regards,Stan
Since they are non-cash in nature, they are added back as a positive amount on the cash-flow statement to keep the cash usage correctThis is the case, but my point is, should they be added back to the cash-flow statement in the first place? Personally, I don’t think so. Common sense, and Warren Buffett, will tell you that options are an expense.https://www.washingtonpost.com/archive/opinions/2002/04/09/s...Snip:But those other forms of compensation had to be recorded as an expense, whereas options -- which were, and still are, awarded in wildly disproportionate amounts to the top dogs -- simply weren't counted.Snip:The argument, it should be emphasized, was not about the use of options. Companies could then, as now, compensate employees in any manner they wished. They could use cash, cars, trips to Hawaii or options as rewards -- whatever they felt would be most effective in motivating employees.But those other forms of compensation had to be recorded as an expense, whereas options -- which were, and still are, awarded in wildly disproportionate amounts to the top dogs -- simply weren't counted.Snip:1) If options aren't a form of compensation, what are they?2) If compensation isn't an expense, what is it?3) And if expenses shouldn't go into the calculation of earnings, where in the world should they go?My point was nothing to do with the niceties of accounting protocol, but rather that Amazon has a lot of expenses to pay, including options, that accounts for most of their cash from operations. kelbon
gurufocus numbers of shares outstanding for Dec 2012 through 2016 are453.0465.0462.0477.0485.0Growth rates of 2.65% -0.65% 3.25% 1.68%So OK, enjoy slower (1.73%/year) dilution.
If shares grow by 1.7% and the company grow by 2.0%, are you being diluted? Growth gets no respect around here! ;)As Warren Buffett puts it, more slices of a much bigger pie.Denny Schlesinger
1.7% is one of the lowest share based compensation dilution levels I have heard of in a long long time - and for a growth tech company?It's amazing its this low and they still innovate!A
Is Amazon Giving Investors One last Chance To Buy? Question investors need to ask themselves, is will we take advantage of the opportunity that Amazon is providing us to kickstart our 2017 investment returns with a bang?Or will we fall for the same old tired story banged on by those with vested darkside and/or under-invested interests?Investors should also bear in mind that with earnings around the corner, the negativity will pick up steam with the channel checkers and supply chain nawabs of negativity getting ready with their nonsensical reports in order to get their 15 minutes. http://www.forbes.com/sites/jaysomaney/2017/01/11/is-amazon-...Denny Schlesinger
I am in excellent company, because I doubt anyone will come up with a stock ("I can’t think of any, not one.") that was so overpriced—in relation to company earnings—for so long as Amazon. Not sure of this, asking more than telling: CRM? CMG?
hey StanNuance--flashback alert.As it turns out they never did make investors fabulously wealthy. There was the potential but it never made it to fruition. Probably a combination of management errors and commoditization of their product. it has become ubiquitous but still fails to catch fire from an investment perspective. Unlike Amazon, who has a somewhat brilliant leader who has tapped in to a commodity product that excels so far above the competition, investors have profited insanely.It's interesting to compare the two companies.
Hi Kit,Somehow I knew the mention of Nuance would draw you out of the coconut and pineapple groves and back to your Hounds board. There were certainly a number of management errors especially in the area of botched acquisitions that never paid off and blew up the balance sheet debt. I’m not sure that their product has been commoditized though. They are still one of the few voice pure plays. Their focus is of course on very specific areas of the enterprise market as opposed to the consumer market that these other folks are addressing. These last five years have been a grind as they have transitioned from a revenue model based on upfront licensing fees to a pay-as-you-go subscription model, but that seems to have reached a tipping point and organic growth is returning. I’ve seen a 150% return in 11 years – not stellar, but still positive. I’ll hang with them for a little while longer and see. Ricci is retiring in a year, so there is that. Whether a somewhat brilliant leader will replace him is TBD.It's interesting to compare the two companies.I wouldn’t even know where to begin. It’s like comparing Apple to Chiquita. ;-)Hope all is well with you and best wishes in 2017.Stan
hey stanalways thought the voice recognition application was somethings a commodity given the ubiquitous nature of the product and the lack of real pricing power. Unless Nuance has some proprietary features that put them well above the competition. Haven't followed the sector enough know who the competition is any more. You were wise to buy at the bottom. That always works better than trying to catch a momentum stock on the way to new highs. When is everything.Being in the black by 150% is a great result with themI think of Amazon and Nuance as examples of leadership that brought about two very different results. The businesses are nothing that could be compared just interesting how good management with vision and desire to create a great company can outperform management that serves themselves. thanks for posting. Back to the guavas and bananas :)
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