AMZN

Alibaba Still Has Upside to $125+ Per Share

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Warren Buffett (BRK.A, BRK.B) hasn’t bought an initial public offering (IPO) in fifty years. The Oracle of Omaha has often said that IPOs are almost always bad investments, which may often be the case. Such a view is great guidance for new and inexperienced investors, but the key word of emphasis in his view is ‘almost.’ Some IPOs are, in fact, worth looking into. Remember: an asset in any form can be mispriced, whether it is a house, rental car, piece of equipment, secondary stock sale, and yes, even an IPO. An asset’s value in any and all cases will be the present value of risk-adjusted future free cash flows after accounting for the current balance sheet net cash/debt position … Read more

Amazon Drops $40 Per Share

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Amazon (AMZN) continues to focus on taking market share and damaging its competitors rather than generating large accounting profits and cash flows. The company’s cash-flow generation should improve if investments turn out to be profitable (and management turns off the expense gushers), but the company remains a low-margin retailing operation. The market has recently grown impatient with the executive suite’s lack of profit focus, and reaction to its second-quarter results, released Thursday, couldn’t have made this point more clear. For a company that boasts a market capitalization of ~$146 billion, one would think the firm is highly profitable. For Amazon, however, this just isn’t the case. We explain why the firm garners such an elevated valuation (despite meager profits) in … Read more

Financial Analysis 501: Why Value Is Always Based on Future Expectations

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A version of this article appeared on our website October 25, 2013. On October 24, 2013, Amazon (AMZN) reported better-than-expected fiscal third-quarter results. Let’s take a look at the firm’s income statement and cash flow statement to explain why value is always based on future expectations of earnings and free cash flow. The concept of value is not based on a firm’s most recent-quarterly performance or its past performance. Amazon currently sports a market capitalization of $166.3 billion as of the time of this writing. Income Statement << What Is the Income Statement? Image Source: Amazon For a company that records $17.1 billion in revenue (the third line down called ‘total net sales’), Amazon’s quarterly ‘loss before income taxes’ of $43 million (negative … Read more

eBay is One of the Cheapest Stocks on the Market

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A data breach and a Google (GOOG) search algorithm change were key concerns heading into June for eBay (EBAY), but the firm’s same-store sales pace during the month showed that little could stop the fundamental momentum at the online retailing giant. Though the pace of its same-store sales expansion may never reach the breakneck rate of Amazon (AMZN), we prefer eBay’s profit focus and believe its competitive advantages are as strong as–or even stronger than–Amazon’s. Here is the June same-store sales data from ChannelAdvisor (ECOM): Amazon – Amazon’s June SSS came in at 34.4%, an increase compared to May’s 28.1%. The Amazon Fire Phone was announced in June and could have caused some knock-on effects. eBay – eBay’s June came … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Assessing Materiality of 5 Relatively Poor Incremental Data Points from eBay

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eBay (EBAY) has one of the strongest business models on the market today. The firm uniquely benefits from a network effect in its auction business and a secular trend toward consumer online consumption in its payments business, PayPal. Recent same-store sales performance has also been solid, albeit slowing, in recent periods. According to ChannelAdvisor same-store sales growth at eBay came in at 11.5% in May, down from 14% in April. eBay retains a vibrant Economic Castle. Before we start walking through the five relatively poor incremental data points from eBay, we need to make a couple things clear. First, we hold eBay in the portfolio of our Best Ideas Newsletter, and we do not expect to make any changes to … Read more

Earnings from 8 Interesting Ideas

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By Brian Nelson, CFA “’I believe you have to be willing to be misunderstood if you’re going to innovate.’ You can’t outperform the market if you are the market. Similarly, you must adopt a non-consensus view and be right about that view to beat competitors.” CEO of Amazon Jeff Bezos with ‘Source: 25iq’ commentary Many members have expressed to me that they just can’t believe investors select stocks in a different way than the Valuentum style (absent dividend growth investors, which have carved out a unique niche in their own right). Some of our new members think the Valuentum process is the principal and dominant framework for investing – or how the majority of investors look at things. This view … Read more

E-commerce Remains in Secular Expansion

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Thursday brought a plethora of news from the e-commerce space. First, Bloomberg reported that Amazon (AMZN) is raising prices on Prime from $79 per year to $99 per year. The company was quick to note that the Prime Fresh membership fee will remain unchanged at $299, as it continues to test pricing thresholds in the marketplace. We don’t expect much customer defection as a result of the price hike—and especially nothing like that which happened to Netflix (NFLX), which lost hundreds of thousands of customers when it raised prices in 2011. Amazon’s price increase at Prime was necessary, in our view, as it faces rising content (movies) and shipping costs. With more than 20 million US Prime members, the pricing … Read more

The Twilight Zone: JC Penney and Best Buy Report Better-Than-Feared Performance

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Shares of JC Penney (JCP) and Best Buy (BBY) are currently engaging in a classic “dead cat bounce” with the equity prices of both firms experiencing modest appreciation after reporting their respective fourth-quarter results recently. JC Penney is trading just over $7 per share, down from about $70 per share in 2007, while Best Buy is hovering at about $27 per share, down from more than $40 per share, a level achieved only a few months ago. We continue to believe both companies are far from healthy. What’s the news that has JC Penney’s shares spiking to $7 and change? The firm reported a loss per share of $0.68 in its fourth-quarter report, released February 26, beating estimates that had … Read more