Amazon’s Q3, Guidance Make A Bear Move, Or Crash, Plausible

28 October 2016

From Seeking Alpha:

Less than two weeks ago, I wrote an article titled Amazon – Next Stop $100 Or $1000?. This bearish article may have been a little different from the usual, as I admire what Jeff Bezos and his capable team have created. I just do not think it was or is worth anywhere near where it trades, and that includes the after-hours trading Thursday. All that did was take Amazon back to the (roughly) $760 range where it traded when Value Line reviewed it in its August 12 edition.

. . . .

The problem with AMZN is that it’s a fine company that does a lot right. But, as I argued in the article linked to above, it got caught up in a double bubble of Internet bubble 2.0 AND the ZIRP bubble which seemingly “justified” 50-100X P/E’s.

But AMZN has serious issues.

Basically, it operates in a tough business. So it passes a lot of cash through its portals but can only take a small portion of it out for itself. Otherwise, if it charged more, shoppers would just find a new tab at some competitor’s website and but from it.

That’s why its earnings need to receive maximum attention, not sales.

. . . .

The company led with cash flow, which is related to sales, but a company can have lots of cash flow and not even be profitable. Here’s the most important lines, buried a bit in the introductory part of the release:

Operating income was $575 million in the third quarter, compared with $406 million in third quarter 2015.

Net income was $252 million in the third quarter, or $0.52 per diluted share, compared with $79 million, or $0.17 per diluted share, in third quarter 2015.

Operating income barely rose. Yet stock-based compensation was estimated at $776 million for Q3. Or, more stock-based expense than operating profit. Is that fair to shareholders, or is AMZN working mostly for insiders? Note that shares outstanding, reflecting insiders cashing out on vested stock-based compensation, rose yoy from 489 to 496 million shares, or 1.4% dilution.

Despite the slow growth of operating income:

Net sales increased 29% to $32.7 billion in the third quarter, compared with $25.4 billion in third quarter 2015.

Meaning that very little of the sales gain was profit; all the rest was expense.

. . . .

Doesn’t this company care about profits at all? Also from the press release:

Fourth Quarter 2016 Guidance

  • Net sales are expected to be between $42.0 billion and $45.5 billion, or to grow between 17% and 27% compared with fourth quarter 2015. This guidance anticipates approximately 60 basis points of favorable impact from foreign exchange rates.
  • Operating income is expected to be between $0 and $1.25 billion, compared with $1.1 billion in fourth quarter 2015.

Maybe they are sandbagging things a little. But to project, in the holiday season, as little as no operating profit, is just not acceptable in this giant company. If any other company than AMZN, Tesla, or Netflix did this, the stock would absolutely crater. But not these guys.

. . . .

A key question was posed in the Q&A:

Justin Post – Bank of America Merrill Lynch

… I guess when you look at fourth quarter guidance and you back out AWS, it suggests that margins are, on the core business, are going to be pretty down versus last year. Do you view this as a abnormal investment cycle, or just part of the overall kind of ebbs and flows of the business? And then long-term, I know several years ago you talked about maybe high single digit, low double digit margins long term. I wonder if you could refresh us on that, and also just let us know if you think International has structural margin differences than the U.S. in the core retail business.

Brian T. Olsavsky –, Inc.

… As far as long-term operating margins, I can’t forecast that right now. I can’t forecast that for our AWS business either.

Yikes! As AMZN was already hot, hot, hot – but wanted the stock even hotter, the company dangled massive margin increases in front of Wall Street. Now, their casual message is to forget about that goal. Now, the goal is to pamper the customers, as Mr. Olsavsky went on to explain:

We are again working on two fronts. We are honing the businesses that we’re in and making them as efficient, as profitable as possible while also investing very pointedly and very wisely, we believe, in things that will enhance customer experience and create lasting businesses for us down the line. We’ve said we want things that customers will love, can grow to be large, will have strong financial returns and durable and can last for decades. So that’s still our mission. We have pillars of the business right now with Marketplace, AWS and Prime and we’re actively looking for a fourth and fifth pillar.

. . . .
 No dividends, no actualy interest in sustainable profit streams in the next many years. Just saying “we want [to provide] things that customers will love” is not good enough at thisstage of the game. Not when AMZN is one of the most highly valued companies in the world.

Link to the rest at Seeking Alpha

PG is anything but a savvy investor or financial expert, but the OP seems to be complaining that Amazon has gone back to doing what it has done for most of its corporate life prior to the last year or so – growing just as fast as it can.

Long-time investors have lived with the promise (and results) that Amazon can do much better things with its money by keeping the pedal to the metal than it can by paying dividends to shareholders. Those long-time Amazon investors have seen the value of their stock increase year after year after year.

Maybe that will all change, but Amazon’s latest message seems to be, “We’ve proven we can make profits for the last little bit, but we still want to grow. You can jump off with your capital gains or stay on for the ride.”


28 October 2016

Patience is not simply the ability to wait – it’s how we behave while we’re waiting.

Joyce Meyer

3 Things Your Traditional Publisher Is Unlikely to Do

28 October 2016

From Jane Friedman:

Years ago, when I still worked for a traditional publisher, I wrote a blog post about the No. 1 disappointment of all published authors: the lack of marketing support from their publisher. This was back when social media was still a fringe pastime, limited mostly to MySpace. So if your publisher wasn’t investing in marketing or publicity, you probably had few available tools to market and publicize your work outside your community—unless you had funds to hire a publicist or a national platform of some kind.

Today, some form of online marketing by both author and publisher is essential for all titles, and while traditional forms of marketing and publicity are still key—everyone wants a mix of online and offline exposure to maximize word of mouth—publishers’ launch efforts may be focused primarily or entirely on online channels. It tends to be more efficient, targeted, and cost effective.

. . . .

1. Send you on a national book tour

This is probably the biggest author disappointment by far, judging from the message boards and discussion groups where I see new authors unleashing their anxieties and questions.

Here’s why publishers won’t send you on a tour: book events are among the least cost-effective ways to sell books. You may get very low turnout at multiple venues and sell not more than a handful of copies at each event.

The big reason to tour across many cities is usually to secure media coverage and reach the many more people who don’t attend the event—the more times and more places that people hear about your book, the better. Unfortunately, as most of us are too well aware, local media isn’t what it used to be and the opportunities for book coverage have diminished, which further deteriorates the value of touring.

That said, events help authors network and build relationships with booksellers that pay off over the long term. But the benefit is rarely tied to selling books in the short term unless you have a marquee name that can draw a crowd.

All this isn’t to say a publisher won’t assist or support you in setting up local or regional events, or even with more extended efforts that you wish to plan. But don’t expect them to set up or fund a multi-city tour to places where no turnout is guaranteed. It risks everyone’s time and resources.

. . . .

3. Market and publicize your work after the initial launch period has passed

Once you’re aware that your publisher’s most important efforts and planning happen before the book is released, it starts to makes more sense (maybe!) why their post-launch activities may be minimal. The plan that was decided upon months ago has already been set in motion, so it’s mainly about coordinating, following up, and building on any momentum that has been created.

Unfortunately, the large majority of book launches involve some sales, some reviews, but nothing outstanding that would motivate the publisher to invest more resource. For authors who haven’t prepared or thought about the launch, this is when panic sets in, especially if they expected more from the publisher. While publishers do a lot of marketing and publicity work to the industry itself (booksellers, wholesalers, libraries, reviewers, media), this work tends to be invisible to the author. For better or worse, these industry-facing activities may not produce the sales everyone wants, or they may not meaningfully affect how many readers hear about the book.

Link to the rest at Jane Friedman

PG will note that he’s never seen a publishing contract from a traditional publisher that obligates the publisher to do anything at all to market/promote/publicize, etc., the author’s books.

The only contractual launch obligation of the publisher in virtually any traditional publishing contract is to “publish” the book within an extended period of time – perhaps 12, 18, 24 months after the publisher’s formal acceptance of the final manuscript. “Publish” is never defined. Merely listing a book in the publisher’s catalog might qualify.

PG says low turnout at bookstore events is a reflection of the substantial reduction in bookstores’ ability to influence readers and promote particular books.

Reading To Dogs

28 October 2016

From The Association of New Zealand Booksellers:

Reading to dogs? Dogs in bookshops? Scandinavian delights? Buy a book and feed an author?  All this, and much more, are all on offer on Saturday, 29 October for NZ Bookshop Day – Your Place, Your Bookshop.

This year 170 bookshops from Whangarei to Invercargill are celebrating their vibrancy and uniqueness, as well as the vital role that bookshops play inour communities.

Booksellers NZ chief executive Lincoln Gould says, “Bookshops are the spine of our community, offering places of discovery, delight, refuge and relaxation. Bookshops mean the world to book lovers, and to New Zealand authors – they are places of escape, treasure and serendipity.”

. . . .

  • Wellington’s new bookshop, Ekor (Swedish for squirrel), will have its café serving Swedish delights. There will beas many Scandinavian books that owner Niki Ward can get her hands on. Ekor has teamed up with Wellington publisher Gecko Press to supply some great children’s books in their original languages – including Swedish.
  • Children can read to dogs at  Paper Plus Wanaka on NZ Bookshop Day. Kids can bring in their favourite book or the dog can choose its own reading matter. Paper Plus is supporting a local remedial reading scheme ‘Reading to Dogs’ that helps improve children’s reading fluency by reading to dogs, as well as lifting their own confidence in their reading ability.
  • Dunedin’s University Bookshop has a strong clientele of Dunedin children and adults, as well as students and academics. Special booklovers’ red velvet cupcakes decorated with tiny books will be available, as well as an opportunity to Buy a Book and Feed an Author. On NZ Bookshop Day, book buyers can take some of the chocolate kisses on the counter, and ‘feed’ one of the authors who will be writing at the table in the middle of the shop. UBS Otago says that last year our authors just loved this interaction, and they’re sure it will be just as popular this year.

Link to the rest at Booksellers NZ

PG is always in favor of feeding authors.

The Gone Girl With The Dragon Tattoo On The Train

28 October 2016

From FiveThirtyEight:

There was a time a few years back when it seemed to me that about every third book I encountered was called “The X’s Daughter,” with X standing in for just about any occupation, title, rank and pejorative imaginable. Bookshelf upon bookshelf was filled with the daughters of generals, cartographers, lacemakers, lighthouse keepers, veterinarians, preachers and miscreants.

More recently, we seem to have entered the age of the girls. Paula Hawkins’s debut, “The Girl on the Train,” was published last year and is still everywhere: Nielsen BookScan reports 2.7 million copies have been sold in the U.S. — the actual number is undoubtedly much higher, because that number doesn’t capture eBook sales — and box-office receipts for the film adaptation reached nearly $25 million in its opening weekend. Gillian Flynn’s “Gone Girl” was equally ubiquitous a couple of years back. This summer belonged to “The Girls,” Emma Cline’s acclaimed debut novel, still prominently displayed in every bookstore I enter. Carl Hiaasen’s “Razor Girl” recently hit The New York Times bestseller list.

Who are these girls? Why are there so many of them? Books with “girl” in the titles make up a tiny fraction of all the books published in a given year, but they appear again and again on the bestseller lists. Other people have written about this trend, often with great eloquence, but none of them were backed by a data set. Using the database at Goodreads, the popular social networking website for readers, we set out to change that. A number of patterns emerged in our analysis: The “girl” in the title is much more likely to be a woman than an actual girl, and the author of the book is more likely to be a woman. But if a book with “girl” in the title was written by a man, the girl is significantly more likely to end up dead.

Why are there so many of these books? Well, because publishing is an industry ruled by mystery and chance. If anyone knew the magic formula by which a book sells a million copies, they’d all sell a million copies.

Link to the rest at FiveThirtyEight and thanks to Kris for the tip.

Katina Powell’s publisher sues Louisville lawyers

28 October 2016

From the Louisville Courier-Journal:

The publisher and co-author of Katina Powell’s book, “Breaking Cardinal Rules: Basketball and the Escort Queen,” have sued two Louisville lawyers for bringing a “baseless” lawsuit on behalf of University of Louisville students who claimed the book reduced the value of their education.

The students’ suit, filed by lawyer Nader George Shunnarah and John Andrew White, was dismissed by a Jefferson Circuit Court judge who said there were no grounds for recovery and permitting it to go forward would “drastically expand the avenues of civil liability and recovery in the commonwealth of Kentucky.”

IBJ Book Publishing LLC and Dick Cady, the co-author, say they have been forced to spend at least $150,000 defending the suit, which they alleged was filed “to extort a monetary settlement and gain notoriety for their clients and themselves.”

. . . .

Hornback alleged in a suit filed in October 2015 that the book tarnished the university and reduced the value of her education. She asked that it be designated a class action so she and other students could share in the profits.

. . . .

In the book, Powell, a self-described escort, said U of L employee Andre McGee paid her $10,000 over four years to provide sex and striptease shows to players and recruits.

Link to the rest at Louisville Courier-Journal

Amazon Posts Smaller-Than-Expected Profit

27 October 2016

From The Wall Street Journal: Inc. posted a smaller-than-expected increase in third-quarter profit on a sharp increase in shipping and other expenses.

Shares fell 5.9% in after-hours trading and finished down 0.5% on Thursday.

Amazon’s shipping costs rose 43% in the third quarter to $3.9 billion. The retail giant has started laying the groundwork for its own shipping business to add more delivery capacity for the holidays, with the grander ambition of one day hauling and delivering packages for itself, other retailers and consumers.

Some of Amazon’s big investments helped guide it toward its current profitability, such as its popular Echo speaker device and its highly automated warehouses and logistics network.

Amazon is also targeting new growth markets like fashion and beauty, where analysts expect quick gains due to its relatively small market share.

In all, earnings rose to $252 million, or 52 cents a share, from $79 million, or 17 cents a share, a year earlier. Analysts surveyed by Thomson Reuters expected earnings of 78 cents a share.

. . . .

Thursday’s numbers bring Amazon closer to investors’ long-held hopes of consistent profitability. The company has seesawed in and out of the black since its stock market listing nearly 20 years ago. Long after Amazon became the giant of e-commerce, it pumped revenue gains back into product development and operations.

Link to the rest at The Wall Street Journal (Link may expire) Announces Third Quarter Sales up 29% to $32.7 Billion

27 October 2016

From the Amazon Media Room:, Inc. today announced financial results for its third quarter ended September 30, 2016.

Operating cash flow increased 49% to $14.6 billion for the trailing twelve months, compared with $9.8 billion for the trailing twelve months ended September 30, 2015. Free cash flow increased to $8.6 billion for the trailing twelve months, compared with $5.4 billion for the trailing twelve months ended September 30, 2015. Free cash flow less lease principal repayments increased to $4.9 billion for the trailing twelve months, compared with $3.1 billion for the trailing twelve months ended September 30, 2015. Free cash flow less finance lease principal repayments and assets acquired under capital leases increased to $3.4 billion for the trailing twelve months, compared with $637 million for the trailing twelve months ended September 30, 2015.

Common shares outstanding plus shares underlying stock-based awards totaled 496 million on September 30, 2016, compared with 489 million one year ago.

Net sales increased 29% to $32.7 billion in the third quarter, compared with $25.4 billion in third quarter 2015. The favorable impact from year-over-year changes in foreign exchange rates throughout the quarter on net sales was $52 million.

Operating income was $575 million in the third quarter, compared with $406 million in third quarter 2015.

Net income was $252 million in the third quarter, or $0.52 per diluted share, compared with $79 million, or $0.17 per diluted share, in third quarter 2015.

“Alexa may be Amazon’s most loved invention yet — literally — with over 250,000 marriage proposals from customers and counting,” said Jeff Bezos, founder and CEO of Amazon. “And she’s just getting better. Because Alexa’s brain is in the cloud, we can easily and continuously add to her capabilities and make her more useful — wait until you see some of the surprises the team is working on now.”

. . . .

  • Amazon introduced Prime Reading, a benefit for Prime members to enjoy unlimited, free reading from a rotating selection of over a thousand books, magazines, comics, and more.
  • Amazon and Audible announced Audible Channels, a new benefit for Prime members to enjoy unlimited, free access to the new short-form digital audio service as well as access to a rotating selection from Audible’s audiobook catalog.

Link to the rest at Amazon Media Room

Having an Aspirational Home Library Is Totally Normal

27 October 2016

From Slate:

The Pew Research Center reported last month that more than a quarter of Americans have not read a book in the last year, a proportion that has more than tripled since the late 1970s. But take heart! Books seem to be cooler than ever these days. In the Year of our Lord 2016, you can buy perfume and candles, duvet covers and sweatshirts to advertise that you love them. One can be “obsessed” with books now without being much of a reader. Recall, if you will, this instantly iconic recent exchange between Kris and Khloe Kardashian:

Kris: “I’m obsessed with books right now. I’m reading a book about Le Courvoisier [sic], which is an architect. It’s so weird and boring, but I’m obsessed.”

Khloe: “No you’re not. And you’re not reading that book.”

Kris: “Well, I look at them.”

Khloe: “Right, you look at it. It’s not a real book.”

Kris: “It has words.”

Khloe: “Oh, ‘This building was erected in nineteen-whatever’?”

Kris: “Yes, it’s called history.”

Khloe: “That’s a coffee table book.”

As I have done so many times before, I must ask: Is Khloe Kardashian right? Is there something just a little bit gauche about displaying books in one’s home that one isn’t actually reading, and has no intention of reading? I have no intention of consuming The Brontës at Haworth or The Woman’s Day Book of American Needlework cover to cover, but nor are they fraudulent representations of my interests. Is it acceptable to treat books as decor, a representation of one’s aesthetic aspirations rather than one’s intellectual biography? What is the normal approach to displaying books in one’s home?

. . . .

In my own home, I strive for moderation. I’m semi-organized, with separate bookcases for fiction and non-fiction; non-fiction is further grouped loosely by subject matter. On a few shelves, I’ve stacked coffee-table books horizontally with knick-knacks on top, a trick I picked up working at a home-decor magazine. I aim for a loose kind of honesty in what I keep around, too: I long ago banished my college copies of Kant and Hegel. But I do keep cooler, smarter books at eye-level, and I shunt the trashy and random up toward the ceiling.

Link to the rest at Slate and thanks to Dave for the tip.


27 October 2016

Price is what you pay. Value is what you get.

Warren Buffett

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