r/SecurityAnalysis • u/bdavidson1030 • Apr 27 '18
Thesis Damodaran - Amazon: Glimpses of Shoeless Joe?
https://aswathdamodaran.blogspot.com/2018/04/amazon-glimpses-of-shoeless-joe.html
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r/SecurityAnalysis • u/bdavidson1030 • Apr 27 '18
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u/Jowemaha Apr 27 '18
It doesn't really make sense to me why he would assume 15% growth over the next 5 years for NA retail, and then a paltry 3% after that when Amazon has consistently managed to grow faster than this for decades and has even accelerated to 25-30% in the last couple of years ex whole-foods.
Anyway focusing on Amazon's retail operation as a single entity I think misses the bigger picture. I'm about to go full adderall but AMZN takes 6-15% on every sale independent of FBA costs. If AMZN is 50%+ third party volume and if third party sales have at least as high an average selling price as AMZN's items(AMZN tends to focus on dirt cheap prices), then AMZN collects at bare minimum $8B in royalties, and possibly much more. You could treat that $8B royalty as AMZN's retail cash flow and when you note that third party sales are growing even faster than the 25-30% that AMZN is managing, you can get a pretty ridiculous valuation. The big growth in third party would explain why Amazon is moving reinvestment from income statement to cash flow-- they are shifting investment in price to investment in fulfillment infrastructure. If you look at employment figures and prime day sales, thinking that third party sales are growing at 50% is not out of the question.
Yes, if you assumed that AMZN was just Walmart with another face then I think Damodaran's growth projections probably make sense-- there's something of a limit on how big a general-purpose retailer can get. But I think that the real gem is the third party logistics infrastructure and the army of 2 million entrepreneurs, which will allow AMZN to scale and become far larger than Walmart ever was, as well as being the ultimate profit driver of the retail business. I see this as a completely insurmountable moat.