A follow up to this post on Amazon (AMZN).
Amazon 1st Quarter 2012 10-Q
The following Amazon numbers sure look kind of small (to say the least) next to the $ 11.6 billion that Apple (AAPL) earned in its latest quarter. Amazon's Q1 income after tax over the past three years was as follows:
Q1 2010: $ 301 million
Q1 2011: $ 218 million
Q1 2012: $ 41 million
Nice trend by the way. The $ 41 million Amazon earned represents roughly what Apple earned on average during every 8 hour period of last quarter yet Apple's enterprise value is only ~ 4.3x Amazon's.
Makes sense, right?
In addition to the $ 41 million, Amazon did make some money in the 1st quarter of 2012 on equity method investment activity. This resulted in a gain for Amazon of $89 million (making net income $ 130 million) and comes from companies in which Amazon has a minority equity stake.
The quality and sustainability of those earnings seems not at all clear to me. Since, at least in most of the preceding quarters, equity method investment activity has generally generated small losses it would be nice to have some more clarity on this source of net income.
Is the $ 89 million a one time gain or does it represent something more sustainable?
The company bought back $ 960 million of stock in the 1st quarter of 2012 or many times what they earned. In fact, the company bought back a total of $ 1.24 billion of stock over the past 12 months. Remarkably, even with these actions, share count still rose a bit compared to where it was in the 1st quarter of 2011.*
At the current share count and using yesterday's closing price Amazon's market value is bit over $ 102 billion.
Amazing.
This may all work out very well in the long run but the margin of safety principle certainly isn't the first thing that comes to mind.
Adam
No position in AMZN; long position in AAPL
Related posts:
Amazing Amazon
Barron's on Bezos: Time to Reign in Amazon's CEO?
Amazon's Jeff Bezos On Inventing & Disrupting
Amazon Sells Kindle Fire Below Cost
Technology Stocks
* Shares outstanding can rise even when there's a share buyback due to stock option dilution. The share count of Amazon has grown more than 20% over the past decade.
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Applying Newton's Fourth Law
Origin of Newton's 4th Law?
"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases." - Warren Buffett
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Find good businesses; buy at nice discounts to value; stay within limits & stick to what's understandable (necessarily unique for each investor); minimize trading, frictional costs, & errors of all kinds.
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"Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions.
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude.
It's kind of a snare and a delusion to outguess macroeconomic cycles... ...very few people do it successfully and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides?" - Charlie Munger
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude.
It's kind of a snare and a delusion to outguess macroeconomic cycles... ...very few people do it successfully and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides?" - Charlie Munger