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2021-06-02
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Amazon: The Cash Will Come
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":111001607,"tweetId":"111001607","gmtCreate":1622642730009,"gmtModify":1631891162791,"author":{"id":3572346038267446,"idStr":"3572346038267446","authorId":3572346038267446,"authorIdStr":"3572346038267446","name":"Yingkie","avatar":"https://static.tigerbbs.com/f37b831671817bb8499b23ea88628baa","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":15,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>Interesting</p></body></html>","htmlText":"<html><head></head><body><p>Interesting</p></body></html>","text":"Interesting","highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/111001607","repostId":1139790754,"repostType":4,"repost":{"id":"1139790754","kind":"news","pubTimestamp":1622642200,"share":"https://www.laohu8.com/m/news/1139790754?lang=&edition=full","pubTime":"2021-06-02 21:56","market":"us","language":"en","title":"Amazon: The Cash Will Come","url":"https://stock-news.laohu8.com/highlight/detail?id=1139790754","media":"seekingalpha","summary":"Summary\n\nAlthough Amazon benefited from COVID-induced shutdowns, the best is yet to come for free ca","content":"<p><b>Summary</b></p>\n<ul>\n <li>Although Amazon benefited from COVID-induced shutdowns, the best is yet to come for free cash flow.</li>\n <li>Lagging free cash flow growth in 2020 and 2021 is due to investment to support growth, going after massive opportunities.</li>\n <li>After lagging the market, the company is trading at an attractive valuation.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/8a085447e5042d959bca14408fd50b9d\" tg-width=\"768\" tg-height=\"512\"><span>Photo by Bet_Noire/iStock via Getty Images</span></p>\n<p>Short-sighted investors are selling Amazon (AMZN), which has been a massive beneficiary of the COVID shutdowns, to fund dubious reopening plays like General Electric (GE) and Nucor (NUE). As a result, Amazon has lagged the market year-to-date and is now trading at an attractive valuation.</p>\n<p>Although Amazon's revenue and EPS has benefited tremendously from COVID, free cash flow has not. After the current spending cycle winds down, Amazon seems poised to experience an explosion of free cash flow by 2022 and 2023. After all, it is the cash that the company gets to keep for investors that makes the company powerful and investors rich.</p>\n<p><b>COVID Beneficiary</b></p>\n<p>Amazon has been a massive beneficiary of COVID. The company generated $386 billion of revenue in 2020, up 37.6% y/y. This Amazon's fastest growth rate since 2011, even including the inorganic contribution to growth in 2017 and 2018 when it acquired Whole Foods. Amazingly, the last time the company grew faster was in 2011 when the company generated \"only\" $48 billion in revenue. Who said elephants can't dance?</p>\n<p>In 2020, Amazon's e-commerce businesses experienced accelerated revenue growth:</p>\n<ul>\n <li>3rd Party Seller Services increased 49.6% to $80.4 billion.</li>\n <li>Online stores increased 39.7% to $197 billion.</li>\n</ul>\n<p>In 2020, the company's other businesses continued to decelerate, though likely at a lower deceleration than without COVID:</p>\n<ul>\n <li>Subscription Services grew 31.2% y/y $25.2 billion, a 4.4% point y/y deceleration vs. a 10.1% point deceleration the prior year.</li>\n <li>AWS grew 29.5% to $45.4 billion, a 7% point y/y deceleration vs. a 10.5% point deceleration the prior year.</li>\n</ul>\n<p>Physical stores, not surprisingly, is the only business that got hurt by COVID, declining 5.6% to $16.2 billion. A 5.6% decline isn't even that bad, and this business is a drop in the bucket given Amazon's total revenue of $489 billion in 2020.</p>\n<p>The COVID benefits largely extended into 2021 as consensus estimates put 2021 revenue growth at a robust 26.9% on top of tough comps.</p>\n<p>The company saw an even bigger increase in accounting profits. Operating income expanded to 5.9% in 2020, a 70 bps y/y expansion. It is important to note that excluding one-time $11.5 billion COVID-related expenses in 2020, Amazon's operating margin would have been 8.9% rather than the reported 5.9%.</p>\n<p>GAAP EPS grew an incredible 81.8% y/y to $41.83 per share.</p>\n<p><b>Where Is My Money?</b></p>\n<p>Although revenue grow 37.6% y/y and EPS grew 81.8% y/y in 2020, free cash flow growth lagged materially, growing only 20.1% y/y. 2021 is expected to be worse, with free cash flow expected to grow only 16.9%, just half the growth rate of its expected EPS growth that year.</p>\n<p>This because capital expenditure (\"Capex\") increased an incredible 176% y/y in 2020 to over $35 billion. This the largest y/y growth since at least 2007. In terms of absolute numbers, 2020 deployed an incremental $22 billion- an absolutely mind-boggling amount. Capex is expected to remain elevated in 2021, growing another 16% y/y to $41 billion.</p>\n<p>On top of all this spending, the company, on May 26, Amazon announced the acquisition of MGM Studios for $8.45 billion. I can see conservative, old-school investors' heads about to explode- but relax.</p>\n<p><b>The Spending and Free Cash Flow Cycle</b></p>\n<p>In my 2017 article,<i>Amazon Bears Will Get Crushed</i>, I addressed the same investor concern that Amazon is spending too much money, although the spending is at a much, much greater scale today.</p>\n<p>Back in 2017, investors were worried about Amazon's ramped up investments. In a nutshell, my argument was that investors should differentiate between investments going after large opportunities and a bloated cost structure. Generally speaking, unexpected expenses are bad, and - assuming that you trust management's ability - unexpected investments are good. If Warren Buffett said, \"I thought I was going to deploy $20 billion, but an opportunity came up where I can deploy $60 billion\", investors would be ecstatic. That opportunity, for Amazon, was the COVID-induced surge in demand.</p>\n<p>Relax, a surge in spending tends to be followed by years of moderate spending growth. After my 2017 article was published, 2018 and 2019 saw Capex growth of only 12-13% per year, while free cash flow grew 132% y/y in 2018 and 33% in 2019.</p>\n<p>We can see the same cycle in the 2010 - 2015 period. In 2010, Capex surged 163% y/y, then another 85% in 2011, and another 109% in 2012. Looking back, these were puny numbers in the low-single-digit of billions per year of Capex, which of course played a key role in supporting Amazon's future growth. However, in the subsequent three years, 2013 through 2015, Capex grew only 21%-<i>cumulatively</i>.</p>\n<p>By 2015, free cash flow exploded 276% to $7.3 billion, higher than the highest the company has ever generated until then by a factor of two to three.</p>\n<p>Wall Street is expecting the same cycle to play out this time around. In 2022, free cash flow is expected to grow 58% y/y as Capex growth moderates to +3%. In 2023, free cash flow is expected to grow another 44% to a record $82.6 billion as Capex growth is expected to remain low at +2% y/y.</p>\n<p><b>The Market Opportunity</b></p>\n<p>Some investors may take a little more convincing to get comfortable with those huge projected free cash flow numbers. $83 billion of free cash flow by 2023 is almost three times its 2020's free cash flow of $31 billion- already its highest ever. And an incremental $22 billion of Capex deployed in 2020 is a massive number.</p>\n<p>The market opportunity, however, is much more massive.</p>\n<p>Amazon's share of US e-commerce is approximately 50%. That is high, but the US retail market is sized at over $5 trillion, and Amazon has around a 9% share of the entire retail market, and only 3.3% of consumer spending. The company is poised to gain share as it adds greater convenience, more competitive prices and greater selection.</p>\n<p>Amazon is aggressively going after the much larger global retail market, which is sized at approximately $25 trillion. Amazon's expected 2021 revenue of $490 billion is less than 2% of the global opportunity.</p>\n<p>A large portion of Amazon's increase in Capex went to expanding the infrastructure necessary to meet the surge in e-commerce demand. For example, in 2020, Amazon grew its fulfillment square footage by 50% y/y.</p>\n<p>Another areas of spending is to support AWS, which is Capex intensive but highly profitable. At just 12% of 2020's revenue, AWS accounted for over 50% of the company's operating income.</p>\n<p>The global cloud computing market is expected to grow from $371.4 billion in 2020 to $832.1 billion by 2025, at a CAGR of 17.5%. Amazon's AWS generated $59 billion of revenue in 2020 and is expected to grow 31% in 2021 and 25% in 2023. This means AWS has less than 20% market share and is expected to take market share going forward.</p>\n<p>If Amazon has an opportunity to deploy more capital to support this highly profitable and rapidly growing business, thatis all great news to me.</p>\n<p>Management does not tell us exactly how the Capex is allocated and what the returns could look like. I don't think it is possible as an outsider to estimate the expected return of the incremental investments in retail (e-commerce, physical stores, subscription, etc.) vs. business services (AWS, advertising, etc.), because it would require that we analyze the company as separate businesses.</p>\n<p>Amazon is one giant flywheel that cannot be separated into partsany more than you can separate a turtle from its shell. For example, without the traffic generated by its retail business, advertising would not be possible. This obvious. Less obvious is that fact that AWS began as an e-commerce tool, way before it became the public cloud company giant it is today. And although seemingly different on the surface, both Amazon.com and AWS are at its core IT infrastructure platforms at scale. In addition, Amazon's other major initiatives, such as Alexa and streaming, are joined at the hip with e-commerce by Prime membership.</p>\n<p>But we do know one thing: the opportunity for continued growth is massive.</p>\n<p><b>Valuation</b></p>\n<p>Like most growth stocks, Amazon lagged the market so far this year, and valuation is looking attractive.</p>\n<p>Currently, Amazon is trading at 52 times forward EPS, down from 112 times in July 2020. The stock is trading at a 140% premium to the S&P 500, the lowest in 5 years.</p>\n<p>On free cash flow yield, Amazon is yielding 2.6% forward free cash flow, which is towards the low end of its 5-year range. If we believe in the Capex and free cash flow cycle, the stock looks attractively valued.</p>\n<p><b>Takeaway</b></p>\n<p>Although Amazon benefited from COVID-induced shutdowns, the best is yet to come for free cash flow. After lagging the market, the company is trading at an attractive valuation given the large growth opportunities ahead of it, and the potential explosion in free cash flow in 2022 and 2023.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Amazon: The Cash Will Come</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAmazon: The Cash Will Come\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-02 21:56 GMT+8 <a href=https://seekingalpha.com/article/4432586-amazon-the-cash-will-come><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nAlthough Amazon benefited from COVID-induced shutdowns, the best is yet to come for free cash flow.\nLagging free cash flow growth in 2020 and 2021 is due to investment to support growth, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4432586-amazon-the-cash-will-come\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"AMZN":"亚马逊"},"source_url":"https://seekingalpha.com/article/4432586-amazon-the-cash-will-come","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1139790754","content_text":"Summary\n\nAlthough Amazon benefited from COVID-induced shutdowns, the best is yet to come for free cash flow.\nLagging free cash flow growth in 2020 and 2021 is due to investment to support growth, going after massive opportunities.\nAfter lagging the market, the company is trading at an attractive valuation.\n\nPhoto by Bet_Noire/iStock via Getty Images\nShort-sighted investors are selling Amazon (AMZN), which has been a massive beneficiary of the COVID shutdowns, to fund dubious reopening plays like General Electric (GE) and Nucor (NUE). As a result, Amazon has lagged the market year-to-date and is now trading at an attractive valuation.\nAlthough Amazon's revenue and EPS has benefited tremendously from COVID, free cash flow has not. After the current spending cycle winds down, Amazon seems poised to experience an explosion of free cash flow by 2022 and 2023. After all, it is the cash that the company gets to keep for investors that makes the company powerful and investors rich.\nCOVID Beneficiary\nAmazon has been a massive beneficiary of COVID. The company generated $386 billion of revenue in 2020, up 37.6% y/y. This Amazon's fastest growth rate since 2011, even including the inorganic contribution to growth in 2017 and 2018 when it acquired Whole Foods. Amazingly, the last time the company grew faster was in 2011 when the company generated \"only\" $48 billion in revenue. Who said elephants can't dance?\nIn 2020, Amazon's e-commerce businesses experienced accelerated revenue growth:\n\n3rd Party Seller Services increased 49.6% to $80.4 billion.\nOnline stores increased 39.7% to $197 billion.\n\nIn 2020, the company's other businesses continued to decelerate, though likely at a lower deceleration than without COVID:\n\nSubscription Services grew 31.2% y/y $25.2 billion, a 4.4% point y/y deceleration vs. a 10.1% point deceleration the prior year.\nAWS grew 29.5% to $45.4 billion, a 7% point y/y deceleration vs. a 10.5% point deceleration the prior year.\n\nPhysical stores, not surprisingly, is the only business that got hurt by COVID, declining 5.6% to $16.2 billion. A 5.6% decline isn't even that bad, and this business is a drop in the bucket given Amazon's total revenue of $489 billion in 2020.\nThe COVID benefits largely extended into 2021 as consensus estimates put 2021 revenue growth at a robust 26.9% on top of tough comps.\nThe company saw an even bigger increase in accounting profits. Operating income expanded to 5.9% in 2020, a 70 bps y/y expansion. It is important to note that excluding one-time $11.5 billion COVID-related expenses in 2020, Amazon's operating margin would have been 8.9% rather than the reported 5.9%.\nGAAP EPS grew an incredible 81.8% y/y to $41.83 per share.\nWhere Is My Money?\nAlthough revenue grow 37.6% y/y and EPS grew 81.8% y/y in 2020, free cash flow growth lagged materially, growing only 20.1% y/y. 2021 is expected to be worse, with free cash flow expected to grow only 16.9%, just half the growth rate of its expected EPS growth that year.\nThis because capital expenditure (\"Capex\") increased an incredible 176% y/y in 2020 to over $35 billion. This the largest y/y growth since at least 2007. In terms of absolute numbers, 2020 deployed an incremental $22 billion- an absolutely mind-boggling amount. Capex is expected to remain elevated in 2021, growing another 16% y/y to $41 billion.\nOn top of all this spending, the company, on May 26, Amazon announced the acquisition of MGM Studios for $8.45 billion. I can see conservative, old-school investors' heads about to explode- but relax.\nThe Spending and Free Cash Flow Cycle\nIn my 2017 article,Amazon Bears Will Get Crushed, I addressed the same investor concern that Amazon is spending too much money, although the spending is at a much, much greater scale today.\nBack in 2017, investors were worried about Amazon's ramped up investments. In a nutshell, my argument was that investors should differentiate between investments going after large opportunities and a bloated cost structure. Generally speaking, unexpected expenses are bad, and - assuming that you trust management's ability - unexpected investments are good. If Warren Buffett said, \"I thought I was going to deploy $20 billion, but an opportunity came up where I can deploy $60 billion\", investors would be ecstatic. That opportunity, for Amazon, was the COVID-induced surge in demand.\nRelax, a surge in spending tends to be followed by years of moderate spending growth. After my 2017 article was published, 2018 and 2019 saw Capex growth of only 12-13% per year, while free cash flow grew 132% y/y in 2018 and 33% in 2019.\nWe can see the same cycle in the 2010 - 2015 period. In 2010, Capex surged 163% y/y, then another 85% in 2011, and another 109% in 2012. Looking back, these were puny numbers in the low-single-digit of billions per year of Capex, which of course played a key role in supporting Amazon's future growth. However, in the subsequent three years, 2013 through 2015, Capex grew only 21%-cumulatively.\nBy 2015, free cash flow exploded 276% to $7.3 billion, higher than the highest the company has ever generated until then by a factor of two to three.\nWall Street is expecting the same cycle to play out this time around. In 2022, free cash flow is expected to grow 58% y/y as Capex growth moderates to +3%. In 2023, free cash flow is expected to grow another 44% to a record $82.6 billion as Capex growth is expected to remain low at +2% y/y.\nThe Market Opportunity\nSome investors may take a little more convincing to get comfortable with those huge projected free cash flow numbers. $83 billion of free cash flow by 2023 is almost three times its 2020's free cash flow of $31 billion- already its highest ever. And an incremental $22 billion of Capex deployed in 2020 is a massive number.\nThe market opportunity, however, is much more massive.\nAmazon's share of US e-commerce is approximately 50%. That is high, but the US retail market is sized at over $5 trillion, and Amazon has around a 9% share of the entire retail market, and only 3.3% of consumer spending. The company is poised to gain share as it adds greater convenience, more competitive prices and greater selection.\nAmazon is aggressively going after the much larger global retail market, which is sized at approximately $25 trillion. Amazon's expected 2021 revenue of $490 billion is less than 2% of the global opportunity.\nA large portion of Amazon's increase in Capex went to expanding the infrastructure necessary to meet the surge in e-commerce demand. For example, in 2020, Amazon grew its fulfillment square footage by 50% y/y.\nAnother areas of spending is to support AWS, which is Capex intensive but highly profitable. At just 12% of 2020's revenue, AWS accounted for over 50% of the company's operating income.\nThe global cloud computing market is expected to grow from $371.4 billion in 2020 to $832.1 billion by 2025, at a CAGR of 17.5%. Amazon's AWS generated $59 billion of revenue in 2020 and is expected to grow 31% in 2021 and 25% in 2023. This means AWS has less than 20% market share and is expected to take market share going forward.\nIf Amazon has an opportunity to deploy more capital to support this highly profitable and rapidly growing business, thatis all great news to me.\nManagement does not tell us exactly how the Capex is allocated and what the returns could look like. I don't think it is possible as an outsider to estimate the expected return of the incremental investments in retail (e-commerce, physical stores, subscription, etc.) vs. business services (AWS, advertising, etc.), because it would require that we analyze the company as separate businesses.\nAmazon is one giant flywheel that cannot be separated into partsany more than you can separate a turtle from its shell. For example, without the traffic generated by its retail business, advertising would not be possible. This obvious. Less obvious is that fact that AWS began as an e-commerce tool, way before it became the public cloud company giant it is today. And although seemingly different on the surface, both Amazon.com and AWS are at its core IT infrastructure platforms at scale. In addition, Amazon's other major initiatives, such as Alexa and streaming, are joined at the hip with e-commerce by Prime membership.\nBut we do know one thing: the opportunity for continued growth is massive.\nValuation\nLike most growth stocks, Amazon lagged the market so far this year, and valuation is looking attractive.\nCurrently, Amazon is trading at 52 times forward EPS, down from 112 times in July 2020. The stock is trading at a 140% premium to the S&P 500, the lowest in 5 years.\nOn free cash flow yield, Amazon is yielding 2.6% forward free cash flow, which is towards the low end of its 5-year range. If we believe in the Capex and free cash flow cycle, the stock looks attractively valued.\nTakeaway\nAlthough Amazon benefited from COVID-induced shutdowns, the best is yet to come for free cash flow. After lagging the market, the company is trading at an attractive valuation given the large growth opportunities ahead of it, and the potential explosion in free cash flow in 2022 and 2023.","news_type":1},"isVote":1,"tweetType":1,"viewCount":360,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":11,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/111001607"}
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