Author Topic: Stocks  (Read 314167 times)

Offline Ergel

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Re: Stocks
« Reply #270 on: December 19, 2013, 08:30:42 PM »
Very interesting


The new thing put out by Amazon.com (AMZN) a couple of days ago, is how it's setting up this new service called Pantry. Pantry is a service where Amazon.com provides you with a box and a weight limit, and you can use it to buy bulk grocery items. This service is supposed to bring the fight to Costco (COST).

The whole thing is deeply unrealistic

It's not that Amazon.com can't make it work. But people seem to be wildly unaware of just how uncompetitive Amazon.com is, when faced with Costco. Uncompetitive in terms of cost. Costco has cut cost to the bone, massively beyond anything Amazon.com can reach. This is entirely obvious to anyone familiar with the Profit & Loss statements of both companies. Here are just a couple of facts taken from these statements (last 12 months):

Amazon.com

Gross shipping costs are 10.5% of product sales (the category where this new program would fit in);
Fulfillment costs (pick, packing, paying and warehousing) are 11.3% of revenues (this includes both product sales and service revenues);
Technology costs plus marketing plus G&A are 14.2% of revenues.

Costco
All selling, general and administrative costs are 9.6% of revenues.
See the problem? Amazon.com has more than 3 times the selling, general and administrative costs of Costco. Just shipping the product out to the customers exceeds Costco's entire cost base. And the picking, packing, paying and warehousing the products also exceeds Costco's entire cost base. And technology plus marketing plus general and administrative costs also exceeds Costco's entire cost base.

The two companies' pictures are at extremes to each other

While Amazon.com trades for 1411 times past 12 months' earnings and 531 times 2013 earnings estimates, Costco trades for 25 times past 12 months' earnings estimates and 24 times FY2014 earnings estimates.

This valuation chasm is in place though it is obvious that Costco is a massive cost leader over Amazon.com, as seen previously. Thus, while Amazon.com will remain challenged to increase profitability, Costco will continue chugging along in its low-cost, decent-margin strategy.

It's thus evident that Costco is structurally sounder to Amazon and has nothing to fear from Amazon's possible entry into its market. Yet Costco - the superior company - trades cheaper both on a P/E basis as well as in absolute market capitalization. Costco is worth $51.5 billion, whereas Amazon.com towers at a massive $180 billion in spite of its earnings and cost challenges.

Conclusion

In short, Amazon.com has no chance of competing with Costco on cost. It might try convenience or something else, but in terms of cost Amazon.com is a world apart from Costco. There seems to be the feeling that online retailers are somehow most cost-efficient. They aren't. Sure, online retail might menace niche retailers due to concentrating demand from a wide area and from cost being less of a driver, but when it comes to general high-volume merchandise, online retail doesn't stand a chance.

There's a reason why general merchandise mail-order catalogs (Sears Catalog, Montgomery Ward) lost out to bricks & mortar retailers long ago, while niche catalogs survived. The reason is economics. The reason is cost.
Life isn't about checking the boxes. Nobody cares.

Offline Dan

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Re: Stocks
« Reply #271 on: December 19, 2013, 08:36:02 PM »
Very interesting


The new thing put out by Amazon.com (AMZN) a couple of days ago, is how it's setting up this new service called Pantry. Pantry is a service where Amazon.com provides you with a box and a weight limit, and you can use it to buy bulk grocery items. This service is supposed to bring the fight to Costco (COST).

The whole thing is deeply unrealistic

It's not that Amazon.com can't make it work. But people seem to be wildly unaware of just how uncompetitive Amazon.com is, when faced with Costco. Uncompetitive in terms of cost. Costco has cut cost to the bone, massively beyond anything Amazon.com can reach. This is entirely obvious to anyone familiar with the Profit & Loss statements of both companies. Here are just a couple of facts taken from these statements (last 12 months):

Amazon.com

Gross shipping costs are 10.5% of product sales (the category where this new program would fit in);
Fulfillment costs (pick, packing, paying and warehousing) are 11.3% of revenues (this includes both product sales and service revenues);
Technology costs plus marketing plus G&A are 14.2% of revenues.

Costco
All selling, general and administrative costs are 9.6% of revenues.
See the problem? Amazon.com has more than 3 times the selling, general and administrative costs of Costco. Just shipping the product out to the customers exceeds Costco's entire cost base. And the picking, packing, paying and warehousing the products also exceeds Costco's entire cost base. And technology plus marketing plus general and administrative costs also exceeds Costco's entire cost base.

The two companies' pictures are at extremes to each other

While Amazon.com trades for 1411 times past 12 months' earnings and 531 times 2013 earnings estimates, Costco trades for 25 times past 12 months' earnings estimates and 24 times FY2014 earnings estimates.

This valuation chasm is in place though it is obvious that Costco is a massive cost leader over Amazon.com, as seen previously. Thus, while Amazon.com will remain challenged to increase profitability, Costco will continue chugging along in its low-cost, decent-margin strategy.

It's thus evident that Costco is structurally sounder to Amazon and has nothing to fear from Amazon's possible entry into its market. Yet Costco - the superior company - trades cheaper both on a P/E basis as well as in absolute market capitalization. Costco is worth $51.5 billion, whereas Amazon.com towers at a massive $180 billion in spite of its earnings and cost challenges.

Conclusion

In short, Amazon.com has no chance of competing with Costco on cost. It might try convenience or something else, but in terms of cost Amazon.com is a world apart from Costco. There seems to be the feeling that online retailers are somehow most cost-efficient. They aren't. Sure, online retail might menace niche retailers due to concentrating demand from a wide area and from cost being less of a driver, but when it comes to general high-volume merchandise, online retail doesn't stand a chance.

There's a reason why general merchandise mail-order catalogs (Sears Catalog, Montgomery Ward) lost out to bricks & mortar retailers long ago, while niche catalogs survived. The reason is economics. The reason is cost.
Meh. Amazon is cheaper than Costco for electronics and other items because they're perfectly happy with near-zero margins.
Why can't they compete in any other category?
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Offline jj1000

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Offline Ergel

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Re: Stocks
« Reply #273 on: December 19, 2013, 08:42:38 PM »
Meh. Amazon is cheaper than Costco for electronics and other items because they're perfectly happy with near-zero margins.
Why can't they compete in any other category?
The question is how is that sustainable
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Offline Ergel

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Life isn't about checking the boxes. Nobody cares.

Offline Yeki89

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Re: Stocks
« Reply #275 on: December 19, 2013, 10:25:47 PM »
Try S they have been up as of late, I was eyeballing them about a year now. I have seen then grow from under $6.
today they are over $9 over a $1 gain since this post.

Offline eli1571

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Re: Stocks
« Reply #276 on: December 20, 2013, 05:42:04 AM »
am i the only one that bought OLIE ?
no. and prob still worth buying

Offline eli1571

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Re: Stocks
« Reply #277 on: December 20, 2013, 05:43:23 AM »
maybe worth looking in to HSCO being aquired by OLIE which usually makes price jump at least for a little while

Offline fc

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Re: Stocks
« Reply #278 on: December 20, 2013, 10:36:27 AM »
http://qz.com/157404/how-you-could-have-turned-1000-into-billions-of-dollars-by-perfectly-trading-the-sp-500-this-year/

im pretty sure this was written by a homeless guy that once trading in stocks and lost all his money. hes probably blaming his stock broker...

Offline Centro

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Re: Stocks
« Reply #279 on: December 20, 2013, 10:57:24 AM »
BBRY!!

Offline fc

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Re: Stocks
« Reply #280 on: December 20, 2013, 11:14:39 AM »
maybe worth looking in to HSCO being aquired by OLIE which usually makes price jump at least for a little while
why would OLIE a music industry company buy HSCO thats into light bulbs...

Offline dealvr

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Re: Stocks
« Reply #281 on: December 22, 2013, 07:26:31 PM »
Excited to see what this China Mobile deal with do for AAPL
Hey there! I am using WhatsApp.

Offline Centro

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Re: Stocks
« Reply #282 on: December 22, 2013, 07:37:17 PM »
Excited to see what this China Mobile deal with do for AAPL
Let's hope for the best...!

Offline nsamet

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Re: Stocks
« Reply #283 on: December 23, 2013, 07:07:40 AM »
RAD is a good turnaround story. Obamacare, and their renovations to stores will pay off. Hopefully, we see $15 within 2-3 years.

Offline MAJ

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Re: Stocks
« Reply #284 on: December 23, 2013, 02:47:08 PM »
RAD is a good turnaround story. Obamacare, and their renovations to stores will pay off. Hopefully, we see $15 within 2-3 years.
it doesnt scare you that the insiders have been dumping a lot of stock?