Kenton23 wrote:crazypanda wrote:Kenton23 wrote:Is it just me that finds this strange? I’ve just rewatched Terry’s comments on this from the 2021 AGM in which he says, essentially, that the team don’t like Amazon as the retail part doesn’t make (much) money and is cross subsidised by the web services business. If he could take just the web services part he’d be interested. This was only c. 8 months ago.
Other than speculation about the web services part being spun off, can anyone make an educated guess as to what has changed?
Thanks in advance. To be clear, I’m not being critical as the FS team have been v good for me and I remember particularly being a bit aghast when they bought Facebook which so far has been a good investment and prescient.
Any views welcomed. Thanks.
I have absolutely no doubt that Julian has persuaded him that the other parts of the business are growing fast and are much more profitable. The best explanation of this, that I've seen is from Bull on Twitter.
I quote
''Amazon has 2 low margin segments 1P & physical stores. They have 4 high margin segments: AWS, 3P, Ads, Subscriptions. In 2019, pre pandemic Amazon did $280b in revenue, this year we will do $460-470b. In 2019 "services" were $122.08B, this year, so far we're $164B thru 3q
by the end of 2021, "services" will be north of $220b. Yes the high margin alone will be about 80% of all the business amazon did just 2 years ago. The 1P/physical is the other $240-250b amazon will do this year.
So with that out of the way, lets discuss why 3P and not AWS is $AMZN main business. 3p this year has been $73B thus far, now, that is Amazon's cut, the real GMV is likely $300b on that figure, but Amazon only reports their take of it. The chart below is a depiction vs AWS
Seller fees are staggering at Amazon. First $AMZN charges 15% just to sell on the platform whether you ship through them or not, then they charge a myriad of fees for pick and pack, storage, etc. Amazon's cut of fees is now approaching 34%.
but now, Amazon has just opened 350 more facilities this year, they can take on alot of new products, handle more inventory from sellers but on the recent call the CFO said they're contraints are workers, its difficult to add so many, but why are 350 new facilities so important?
aside from faster 1 day/same day shipping, Amazon's seller fees being their most profitable segment, well look at these storage rates. And they're going up in January, $2.40 per cubic foot to store things in the warehouses. The more space amazon has, the more $ they can generate
The Amazon flywheel is getting stronger by the day, while Analysts like Youssef Squali say people want to buy online & pick up in store, Amazon is making that unnecessary w/ same day and 1 day shipping for free. The capex is building a deeper moat w/ a wider gap.''
Plus more for the cloud, the ad business and subscriptions.
The shares have stalled whilst a massive shift to much more profitable segments has taken place. The network effects will bring higher margins and increased profitability in due course. The share price will follow and I suspect it is not unlike Microsoft which went nowhere for several years and then shot up.
I had come to similar conclusions to that contained in the post before reading it and bought very recently.
I have no doubt that Fundsmith's thinking is along similar lines. As Terry Smith says 'Better late than never'. The share price is now lower than when he bought in the autumn!
Those interested may want to read the original post pinned by BUll on Twitter.
https://twitter.com/amazonholder1/statu ... 6848930817