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Bibliophile
5ivedom
Posts: 3,544
Registered: ‎12-03-2011

Amazon, 725 years, and Price to Earnings - Thoughts?

There was a TV interview on one of the Stock sites. And the gentleman on there (who was rather vociferous in his criticism of Amazon) said something interesting -

 

If Amazon kept earning at its current rate, then in 725 years you'd make back what you invested in it today.

 

*****

That 725 figure is stuck in my head because a LOT of companies like Apple and Microsoft that have REAL cash cows and much stronger businesses have very low Price to Earnings ratios. Meanwhile, Amazon, which doesn't (in my somewhat limited understanding) have ANY cash cows, and which isn't tht profitable, has a huge PE.

 

Here are some details - http://ca.finance.yahoo.com/q/ks?s=AMZN

 

P/E Ratio - 73.55.

 

Price/Book - 14.50.

 

Profit Margin - -0.06%.

Operating Margin - 1.11%

 

Total Cash: 11.45 billion.

 

Operating Cash Flow: $4.18 billion.

 

*****

 

So, at what point do people stop saying - At some point of time in the future Amazon will just turn on the profit tap and make huge profits that will justify a 73.55 P/E ratio for a company with a 1.11% operating margin.

 

Comparisons:

 

MSFT has PE of 15.82 and Total Cash of $68 billion and Operating Cash Flow of 30.54.

Apple has PE of 9.74 and Total Cash of $39.82 billion (+ around $90 billion plus parked offshore) and Operating Cash Flow of $56.73 billion.

 

Why is Amazon's PE 5 to 7 times that of MSFT and AAPL? Do people really think Amazon's businesses are better than (or even comparable to) Windows and Office and iPhone and iPad?

 

Distinguished Bibliophile
keriflur
Posts: 6,552
Registered: ‎01-05-2010
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Re: Amazon, 725 years, and Price to Earnings - Thoughts?

I think that people expect Amazon to crank up the prices once it owns, well, the entire publishing industry. 

Distinguished Bibliophile
patgolfneb
Posts: 1,757
Registered: ‎09-10-2011
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Re: Amazon, 725 years, and Price to Earnings - Thoughts?

Kerifleur is correct, Amazon is viewed as a start up to some degree. It is also mostly compared to retail firms which often have smaller margins. Discontent is growing.

 

Amazon trumpets it's tracking and suggestive selling tech, actually decent only when compared with failures like BN. Currently only 3 things appear to be making money for Amazon, Amazon Prime, e books, electronics sales, if Kindle is excluded.

Bibliophile
5ivedom
Posts: 3,544
Registered: ‎12-03-2011
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Re: Amazon, 725 years, and Price to Earnings - Thoughts?

Amazon Prime

eBooks

Electronics

 

That seems a reasonable list.

 

I think Amazon Web Services will also be profitable. Though I doubt how profitable since lots of strong competitors like Apple, Microsoft, the new spin-off from EMC & VMWare, etc.

 

*****

Keriflur, I think this assumption is wrong that Amazon can increase prices later. There's no longer a gate on either side i.e.

 

No gate between readers and books.

No gate between authors and the market.

 

So how do you make money.

 

Gradually, as readers realize there is ABSOLUTELY NOTHING preventing them from connecting directly to authors, it'll shift to CONVENIENCE instead of Scarcity/Quality Control/Curation.

Inspired Scribe
kamas716
Posts: 1,467
Registered: ‎09-28-2011

Re: Amazon, 725 years, and Price to Earnings - Thoughts?


5ivedom wrote:

Gradually, as readers realize there is ABSOLUTELY NOTHING preventing them from connecting directly to authors, it'll shift to CONVENIENCE instead of Scarcity/Quality Control/Curation.


You're still going to need a marketplace of some sort.  Most consumes aren't going to go searching for each individual author's website so they can buy books.  Consumers are fairly lazy, we want to go to one place and buy our stuff.

http://www.goodreads.com/kamas716
Distinguished Bibliophile
keriflur
Posts: 6,552
Registered: ‎01-05-2010

Re: Amazon, 725 years, and Price to Earnings - Thoughts?

[ Edited ]

The lazy gate swings both ways, though on the author's side, it's often a matter of priorities - write more books or spend time building and managing a way to sell them?  But regardless of reason, most authors aren't going to want to spend all their time marketing, managing a digital storefront, etc., and the costs to a non-tech-savvy person, compared to the profits to be made, are prohibitive.  So if Amazon offers a service, and if that service allows an author to sleep at night rather than working 24 hours a day, and that service increases sales by being the primary place that consumers go for one-stop shopping, then Amazon will hold the control.

 

Personally, I'd rather not trade a handful of controlling entities for one controlling entity, especially when the relationship that most authors have with trad publishers is symbiotic, were as Amazon tends more toward the predatory.

Bibliophile
5ivedom
Posts: 3,544
Registered: ‎12-03-2011
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Re: Amazon, 725 years, and Price to Earnings - Thoughts?

Marketplace is Convenience.

 

Consider what you wrote:

 

Consumers are fairly lazy, we want to go to one place and buy our stuff.

 

*****

 

The Q is - ARe consumers lazy enough to keep paying $12.99 and $14.99?

 

I'd reckon not.

 

That as soon as someone makes a site that is at least a bit less conveinent, they will switch to it and leave Amazon.

 

Then Amazon will cut prices. And there go all the profits it was dreaming of. All the years of investment.

 

It's basically broken down the giant castle Publishers had built and erected a shanty town. Now it's hoping that's defensible.

 

IT's not. Fortunately for Amazon, most readers and authors don't realize it. They still imagine it's a giant castle and impenetratable. The truth is, its so fragile it might fall apart without anyone even doing anything.

AlanNJ
Posts: 3,722
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Registered: ‎03-09-2010

Re: Amazon, 725 years, and Price to Earnings - Thoughts?


5ivedom wrote:

Marketplace is Convenience.

 

Consider what you wrote:

 

Consumers are fairly lazy, we want to go to one place and buy our stuff.

 

*****

 

The Q is - ARe consumers lazy enough to keep paying $12.99 and $14.99?

 

I'd reckon not.

 

That as soon as someone makes a site that is at least a bit less conveinent, they will switch to it and leave Amazon.

 

Then Amazon will cut prices. And there go all the profits it was dreaming of. All the years of investment.

 

It's basically broken down the giant castle Publishers had built and erected a shanty town. Now it's hoping that's defensible.

 

IT's not. Fortunately for Amazon, most readers and authors don't realize it. They still imagine it's a giant castle and impenetratable. The truth is, its so fragile it might fall apart without anyone even doing anything.


I disagree.

 

Consumers go for convenience and don't mind paying extra for it.  They are not going to spend the time shopping around to save a dollar or two.  When the Nook first came out lots of people said it would kill the Kindle since the Kindle has a proprietary format.  In general, nobody cares from what I've seen.  Amazon is simple.  That's all most people care about in my opinion.

Never underestimate the laziness of people.

►Without order there is chaos◄
Distinguished Bibliophile
keriflur
Posts: 6,552
Registered: ‎01-05-2010

Re: Amazon, 725 years, and Price to Earnings - Thoughts?


5ivedom wrote:

Marketplace is Convenience.

 

Consider what you wrote:

 

Consumers are fairly lazy, we want to go to one place and buy our stuff.

 

*****

 

The Q is - ARe consumers lazy enough to keep paying $12.99 and $14.99?

 

I'd reckon not.

 

That as soon as someone makes a site that is at least a bit less conveinent, they will switch to it and leave Amazon.

 

Then Amazon will cut prices. And there go all the profits it was dreaming of. All the years of investment.

 

It's basically broken down the giant castle Publishers had built and erected a shanty town. Now it's hoping that's defensible.

 

IT's not. Fortunately for Amazon, most readers and authors don't realize it. They still imagine it's a giant castle and impenetratable. The truth is, its so fragile it might fall apart without anyone even doing anything.


I'm failing to follow your logic here.

 

First off, lazy and cheap are not synonyms.

 

You assume that all the authors would go over to that other platform also, but who says they would?  Or did you forget about them entirely?

 

Reminder - books are not widgets, you can't just replace one with another.

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Omnigeek
Posts: 885
Registered: ‎01-25-2011
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Re: Amazon, 725 years, and Price to Earnings - Thoughts?

How does one create a "less convenient" site if the target consumers are already locked into a proprietary standard?  There's already inertia on the part of consumers who feel they have a "significant investment" in AZW-format e-books so the competitor would either have to be able to read AZW formats without violating Amazon patents, convince Amazon to sell ebooks in another, more open format (good luck with that) or tell the prospective customers to do something potentially illegal by transforming all their current products?

Currently reading: Destiny of the Republic, The Heritage of Shannara, Lonely Planet: Melbourne & Victoria