First Adopter - Latest Comments

Re: @firstadopter Top 10 Predictions for 2012

oghowie — Fri, 11 May 2012 02:57:43 -0000

Look at this now, a lot of your predictions have come true. I just hope NFLX gets bought out since I still own the stock.
I wish I had read this earlier this year since I also currently own SINA and ZNGA...

Re: @firstadopter Top 10 Predictions for 2012

torres — Mon, 07 May 2012 14:13:42 -0000

Monday May 7th, same feeling about $SODA? Haven't heard anything new from you on this one so assuming so.

Re: Amazon.com (AMZN) is the Secular Short of 2012

ChKen — Sun, 06 May 2012 19:16:42 -0000

Wow, you put a lot of effort into that. Some brief comments:
• "The Company stated in its 10K 2011 that it expects future gross margins to decrease" - uhm, every quarter, Apple states on their conference call that they expect future gross magins to decrease.

• "Portables (MacBook products): 2009-2010 18%; 2010-2011 36%
Total Mac sales: 2009-2010 26%; 2010-2011 25%. So this is not a growth factor. " - uhm, what? The rate of growth may be somewhat static, but it is still growing, at a healthy rate compared to the industry.

• "Other Music related products and services, (this includes iTune, Apps, 3rd party iPod accessories and iBook): 2009-2010 23%; 2010-2011 28%. This is not the explosive growth rate in digital content that would indicate death or even great threat to a competitor." - LOL, 28% growth is not "even a great threat"?

• "Phone: 2009-2010 93%; 2010-2011 87%. Ouch!!" - Of all the silly things you've written, this is the silliest. Do you realize how many companies have greater than 80% growth in such a large line of business?

• "iPad: As investors we must keep in mind that this is a crowded field and competitors learn and adjust quickly." LOL, it's been 2 years, even a fast follower like Samsung only gets a fraction of the market. The iPad has 78X more web traffic than all the SGalTab variants.

• "This will require coming out with a new iPad every year and eventually increase spending on R&D thus decreasing both gross margins and profit margins" - Please, Apple has been coming out with new iPods and new iPhones every year since 2001. You'd think they know how to leverage their experience in making iOS devices and leverage their R&D, and increase gross margins and profit margins.

• "Proview represents a clear and credible potential threat to iPad revenue over the course of the next 3 years" - UTTER NONSENSE. Noone,besides you, believes any of the nonsense you wrote. They'll settle before there's any sales injunction, etc.

Re: Amazon’s Fundamentals are Getting Worse

firstadopter — Thu, 03 May 2012 13:34:30 -0000

Today IDC confirmed my Q4-2011 to Q1-2012 Kindle Fire sales implosion analysis in my above article: "MacRumors IDC analysis: AMZN "Kindle Fire shipments..collapse from 4.8M units Q4-11 to less than 750K last qter" http://www.macrumors.com/2012/...

Re: Amazon’s Fundamentals are Getting Worse

Service fulfillment — Wed, 02 May 2012 15:04:19 -0000

Just because MS is throwing their clout to Barnes and Noble doesn't necessarily mean a huge impact on Amazon. Don't forget that B&N doesn't have anywhere NEAR the fanatical devotions that Amazon customers have.

Re: Amazon’s Fundamentals are Getting Worse

krk_krk — Tue, 01 May 2012 09:54:48 -0000

You write: The CFO conveniently would not comment on “any specific geography” like New York State, but repeated the same refrain from the past that for 50% of Amazon’s sales the company collected some kind of VAT tax (Europe) or sales tax and the company was able to grow in the past few years."

But its VAT practices in Europe for digital goods are coming under scrutiny..
http://www.guardian.co.uk/tech...

"..Amazon's tax issues extend beyond the U.S.: British authorities are investigating why Amazon's Luxembourg-based Euro subsidiary paid no taxes on its 2011 U.K. sales, which totaled over $5.3B. It's added Amazon's U.K. ops paid less than $5M in taxes from 2003-2011, and that its corporate structure allows it to charge a VAT of just 3% on local e-book sales, rather than the 20% charged by British rivals."

Re: Amazon.com (AMZN) is the Secular Short of 2012

krk_krk — Thu, 29 Mar 2012 16:09:04 -0000

It is not Amazon that would be paying the sales tax, but rather it would be collecting it from you and then the NET PRICE with TAX might take the shine off their low-price meme.

Re: Amazon.com (AMZN) is the Secular Short of 2012

krk_krk — Thu, 29 Mar 2012 16:05:20 -0000

Besides Amazon Prime, one other albatross of shipping costs is their "Subscribe & Save" program for groceries, beauty products, household supplies, plus 14 other categories and you get 5% to 15% discount & FREE SHIPPING.

You can schedule your delivery out to 6-month period and can cancel anytime.

I had ordered a couple of items scheduled out to 6 months and each costing around 5 bucks and got them delivered seperately in 2 days. I suppose they figure I will get hooked which I just might but they can't possibly make money on me.

Re: Amazon.com (AMZN) is the Secular Short of 2012

Hugh — Thu, 15 Mar 2012 14:36:35 -0000

Great analysis, just one thing that you didn't mention that won't help amazon in the future is the impending state sales tax that is coming down the pike. Its inevitably going to happen. How can it be fair when one of the largest retailers in a state sell there products without collecting sales tax when all the local retailers have to pay it.
How much toilet paper or paper towels are people going to order from amazon when they have to pay shipping and sales tax.

Re: Amazon.com (AMZN) is the Secular Short of 2012

firstadopter — Tue, 13 Mar 2012 17:53:22 -0000

Look at the chart of iPad and iPhone sales going up exponentially in my article above vs. Amazon's electronics/other revenue segment. I don't understand your other points on Apple. Have you seen their financial results in the past few quarters?

Re: Amazon.com (AMZN) is the Secular Short of 2012

Giglieri25 — Tue, 13 Mar 2012 15:20:30 -0000

As I pointed out in my comment I was taking the inverse position of the writer's comment. He chose to base his article mostly on Amazon.com vs Apple inc. Thus he was, I felt, giving a very distorted buy. When you chose to invest in a company, here he is saying buy Apple not Amazon or even short Amazon, it is not that simple. In chosing to invest in Apple you have to look at the merits of investing in Apple, within your investment horizon, on its own merits.

I could have and can, given my time, give you another inverse to his article and show why to a certain type of investor Amazon.com is a good investment on its own merits. I have analysed both companies for more than 12 years. I was an investor in Apple when Skully was the CEO, when Microsoft offered to buy it.

The companies are not direct competitors as this author and the financial media would have traders and investors believe. A cursory industry analisys and product analysis of both companies clearly shows this. There are some product sectors or industry subsectors, if you will, where they compete and even here the competition is not as direct as one might think.

As for "the biggest" when it comes to audio books it is Audible.com, which Amazon bought. Even Apple has to go through them based on a deal they made in 2003. As you can see things are not always as simple as they might seem. Amazon gets paid, through Audible, for almost all audio books sold in the world. As for video this honour goes to Hulu and Netflix. Music, yes iTune so too for App.

As I pointed out though, investing is a forward looking endeavor. Where do you see Apple given your investment horizon in respect to these "biggest" industries? Where do you see Amazon or even Netflix. Modern Portfolio Theory, with all of its failings, states that you should not have a one stock portfolio, risk distribution. You could actually play both Amazon.com and Apple, inspite of the media.

I see Amazon's future in digital as very good, but in the near term it will cost them dearly. Short-term investors have no stomach for this, but consider this point: Amazon began as a mere bookseller, then its main music competitors were CDNow and N2K, (I have been in Finance since 1987 lots of data), both companies merged to better take on Amazon in the summer of 1998. CDNow was bought by Bertelsmann who then hired Amazon to run CDNow until 2006. At the time Amazon ivested heavily in music and DVD sales. Just like now, investors and traders either sold or heavily shorted the stock into the single digits. I felt the pain for years to come!! All of the investing paid off. From it came not only its huge revenues in those segments but also the Kindle, Cloud biz, server farming, etc. Many claimed that the company was confused, it didn't know whether it wanted to be an eTailer or an IT company. Those people where not thinking about ebooks, tablets, cloud, etc.

Amazon is back to spending and it has to, all companies have to otherwise they risk becoming obsolete or irrelevant, worse yet bankrupt. Netscape created the browser but never invested to grow it or beyond it, it went out of biz, though M. Andressen likes to go around investing in start ups. Where is Digital Equipment Corp, Compaq Computers? Palm so its innovation, its creation taken away from it by cell phone companies. Motorolla once the leader in cell phone now lies somewhere in a corner of the industry. If companies don't invest in growth and instead work on massaging the stock price they too will disappear. Bezos work on Wall Street and he knows the dangers of just trying to please Wall Street quarterly appetite.

Re: Amazon.com (AMZN) is the Secular Short of 2012

DaveChapin77 — Tue, 13 Mar 2012 14:17:15 -0000

The article was about Amazon. Not Apple except inasmuch as Apple is a very potent competitor in a market that Amazon desperately needs traction: Tablets and online delivered goods.

BTW: I think it's telling that Apple has about the largest digital media business: biggest music store, biggest app store, biggest video store, probably the biggest audiobook store, and yet, you are right it's not a big profit generating business. But nevertheless, this is the business that is supposed to be Amazon's future for its historically most lucrative retail products (physical books/music/video/games).

Re: Amazon.com (AMZN) is the Secular Short of 2012

Giglieri25 — Tue, 13 Mar 2012 13:56:35 -0000

I would like to add a minor but important correction to unit sales where I have reported them they are to be read in thousands thus iPad sales in 2010 were, rounded of by the company, 7, 458,000.

Thank you

Re: Amazon.com (AMZN) is the Secular Short of 2012

Giglieri25 — Tue, 13 Mar 2012 13:01:16 -0000

Since you claim that Amazon is in the cross-hair of Apple's digital business, please state what percentage of Apple's revenue comes from digital business. The iBook store has not taken traction and from a profit standpoint Apple doesn't even disclose it. Truth be told iBook is an after thought for Apple. But let me take the inverse of your arguments an put Apple on the seat. Disclosure, the following data comes from Apple's 10K 2011. You can find it, as I did on Apple.com or Sec.gov.

Investing is a forward-looking endeavour, that is not open to debate, it lies at the core of the time value of money as taught in Finance. So that to value any company you have to attempt to project both its profit potential and revenue potentials into some future time known as your investment horizon. That last part is critical to portfolio managament.

First I want to look at Apple's gross margin in % and its growth rate, (remember where this data comes from, straight from the 10K): 2009 40.1%; 2010 39.4%; 2011 40.5%. Over the last three FY's the Gross margin, (remember that this is just sales minus cost of good sold and doesn't include other expenses all of you who have studied Financial Analysis know this). But this is historical data, what about the future? The Company stated in its 10K 2011 that it expects future gross margins to decrease. Since gross margins are by itself a quasi indicator of profit potentials we see that 1. profits have not been growing at a rapid rate. From 2009 to 2010 GM actualy declined and from 2010 to 2011 they only increased by 1.1%. And 2. By management's own admission future GM will decline.

Let's now look deeper inside the company at its sales mix: As investors, non-emotional ones, we need to know where growth is coming from and where it will come from given the company's current trajectory.

Page 31 of the 10K breaks grow (decline) rate down like this, in %: Desktop 2009-2010 43%; 2010-2011 4%

Portables (MacBook products): 2009-2010 18%; 2010-2011 36%
Total Mac sales: 2009-2010 26%; 2010-2011 25%. So this is not a growth factor. Certainly not good news for investor but it would explain why the company chose to alter its name to Apple from Apple Computers. This is an important recognition of the Company's forward-looking strategy and market positioning.

Next: Ipods. This product segment had been a profit driver for quite sometime. 2009-2010 2%; 2010-2011 (10), (remember that in accounting this means negative 10%. This indicates that the segment has matured. We can extrapolate that the company will not spend R&D money on this segment. It's being cannibalized by the iPhone. It is nolonger a revenue or profit driver but a drag on both. if we look further down at iPod unit sales we get this 2009-2010 (7); 2010-2011 (15). The take-away is that the segment will be consolidated into just one or two products rather than complete elimination, but there is no growth there.

Next: Other Music related products and services, (this includes iTune, Apps, 3rd party iPod accessories and iBook): 2009-2010 23%; 2010-2011 28%. This is not the explosive growth rate in digital content that would indicate death or even great threat to a competitor. As a matter of fact we have to conclude that most of the growth is coming from Apps which HAVE seen explosive growth. With that in mind, then iTune and iBook make a very small % of this growth. App growth is driven by the newness of the iPad.

Next:iPhone: 2009-2010 93%; 2010-2011 87%. Ouch!! There is a decline, but let's look at unit sales to see if maybe it's a discounting of price issue:
Unit iPhone sold: 2009-2010 93%; 2010-2011 81%. Above I stated that perhaps the decline in iPod sales was due to cannibalization by iPhone, and it still could be but the decline in iPhone sales is another negative for the company. When you buy an iPhone you are locked into a contract with the carrier. Thus the carrier subsidises you, in exchange they want a 2-year contract at minimum. As this is a mature segment for Apple we can expect that the rate of growth will decline. Also, because of the greatness of the product and little differentiation in upgrades going forward the growth rate and unit rate of sales will also decline. This is true for any product in any industry. Market saturation.

Next: iPad: 2009-2010 NM, (not meaningful); 2010-2011 311%. It would seem impressive, but it would only seem. Fact is this is a new product so the percentage growth is high. As for Unit sales in 2010 in absolute #'s 7,458; 2011 32,398. As investors we must keep in mind that this is a crowded field and competitors learn and adjust quickly. Apple has shown that this is a viable segment of the computing industry. As a matter of fact for the 4th Q of 2011 its share of the sector declined to 57%. The industry is in the early part of the 'S' curve. The company with first-mover has to decide how it wants to compete: differentiation or price. Apple has chosen to compete on differentiation in order to maintain profit margins. This will require coming out with a new iPad every year and eventually increase spending on R&D thus decreasing both gross margins and profit margins, (industry analysis).

What to make of this and other data supplied in the 10K, including management discussion? Well, there is one last point which most of the Financial Media has mostly ignored and analysts will not delve in, at least not at length: Proview. Proview represents a clear and credible potential threat to iPad revenue over the course of the next 3 years. If it suceeds in having sales and production, (through a ban on export) of the iPad barred in and from China it will have an affect on Apple's Chinese revenue and it will halt production until Apple relocates outside of China. There are plenty of countries in the region that would welcome its business, but would the cost of good sold rise in the form of an increase in labor cost? Pricing the new iPad the same as the iPad2 means that Apple does not want to pass cost along to consumers and potentially lose marketshare to competitors. Thus gross margins would further contract.

You can continue with the emotional arguments made and posted in response to articles appearing here and in such places as Marketwatch, Seeking Alpha, Yahoo, Motley Fools, etc, or you can pour through the financial statements and using you knowledge of Industry Analysis, Financial Statement Analysis, Portfolio Management and Strategic Management Analysis arrive at your own conclusion as to what is price you want to pay for a share of a stock given you investment horizon. This applies to any investment instrument in our financial universe.I'm not telling to buy or sell or short the stock but I am asking you to be a more informed and intelligent investor. I am reminded of a statement, always overlooked, by Gordon Gecko of "Wall Street", "Never get emotional about stocks."

I wish you well.

Re: Amazon.com (AMZN) is the Secular Short of 2012

IntelligentSpec — Tue, 13 Mar 2012 10:44:22 -0000

Great analysis, very appreciated. i've been bullish on Amazon for the past few months and some of these numbers do make me question that. I still do believe in the overall "market share" focus there is no doubt that the Prime strategy could turn out to be too expensive in the end... thanks, I will continue to read through this info

Re: Amazon.com (AMZN) is the Secular Short of 2012

DaveChapin77 — Tue, 13 Mar 2012 03:19:50 -0000

Wow, the shipping loss percentage trend is incredibly eye opening. The idea with volume is that costs go down as a percentage. For them to actually rise with volume! Holy smokes.

And as for kindle sales. I wonder what sort of nice sounding stat bezos will serve up to obfuscate that meltdown... "more kindles sold last quarter than in all quarters combined before we started selling kindles."

Re: Amazon.com (AMZN) is the Secular Short of 2012

Dr. Duru — Tue, 13 Mar 2012 01:45:07 -0000

Great analysis. This well explains why Amazon's stock has been relatively weak lately. Even MORE importantly, I am *dying* to know how you installed Android on your Touchpad?!? I have been searching the web for instructions!

Re: Amazon.com (AMZN) is the Secular Short of 2012

Dayabaran — Mon, 12 Mar 2012 17:42:17 -0000

Fastastic article. Couldn't agree more. I have shorted AMZN before. It is a worthless piece of crap. It's PE is ridiculous. I believe it's valuation is $40 billion. Something like eBay and they dont carry inventory. Also i think bankers keeps its PE high because it needs to buy new distribution using its high PE stock, less dilution. They make fees from its bring Amazon the deals. I dont know who the dumb investors buy this crap are. They are doing to wake up one morning and realize they have been buying a Webvan. Don't even get me started w Kindle Fire.

Re: Amazon.com (AMZN) is the Secular Short of 2012

firstadopter — Mon, 12 Mar 2012 15:07:59 -0000

I am short the stock directly. No options.

Re: Amazon.com (AMZN) is the Secular Short of 2012

JGERRITWULTERKENS — Mon, 12 Mar 2012 14:38:21 -0000

firstadopter are you playing this thesis through a trade? Puts? Leaps? Interested to know because how you structure the trade implies what kind of time frame you intuitively expect.

Re: Amazon.com (AMZN) is the Secular Short of 2012

Capcube — Mon, 12 Mar 2012 12:59:58 -0000

Perhaps.

In case you have not noticed, $AMZN is 25% off last year's highs, so I would say some have woken up already. But there is a lot more to go. IMO, based on fundamental realities.

Re: Amazon.com (AMZN) is the Secular Short of 2012

krk_krk — Mon, 12 Mar 2012 10:15:59 -0000

Digital goods! The very stuff at which Amazon is supposed to be uber-dominant may turn out to be its Achilles heel and undermine its absolute dominance in the physical books segment notwithstanding it efforts to build a moat with its proprietary kindle format.
With digitization, publishers will to be able to “disintermediate” middlemen like Apple and Amazon with ease. Why bother with agency model, wholesale model etc. when all that is needed is a platform to host the content, manage DRM, process payment and advertise/promote etc.. the kind of stuff which fits Google's biz model of an advertising portal and also dovetails with Facebook's monetization efforts. The publishers and authors could also establish their own collaborative eBook portal and simply pay commissions to sales coming from affiliate's referral links. To that end, the publishing industry should get behind an open format like ePub and encourage the availability of generic, commodity e-reader devices.

EBook distribution might evolve into a “Marketplace” model where publishers and authors sell their eBooks on an eCommerce portals like Amazon, and then Amazon's fair valuation metric would be no different than say, eBay. However, Amazon’s efforts to also be a publisher as well might give publishers pause and a preferred marketplace platform might be a neutral, non-competing one like Google.

Re: Amazon.com (AMZN) is the Secular Short of 2012

Imagine27 — Mon, 12 Mar 2012 07:53:38 -0000

that s.b. ..."fit".... not git

Re: Amazon.com (AMZN) is the Secular Short of 2012

Imagine27 — Mon, 12 Mar 2012 07:52:04 -0000

I wouldn't advise the digital toilet paper, it doesn't work so good. Amazon is thinking about stuff you've left out of this analysis. The question is, did you not see that, or it just didn't git your contentious thesis?

Re: Amazon.com (AMZN) is the Secular Short of 2012

Andyco38 — Mon, 12 Mar 2012 07:28:52 -0000

Why coming soon? What is different? Suddenly everyone is going to wake up and realize what you have known all along?