That difference is partly due to different things being valued: Walmart's valuation is primarily its current business, while Amazon's valuation is primarily its future growth prospects. That future growth is valued in the market cap today, but its actual materialization will only take place in the future, so doesn't show up on the payroll today. If Amazon does actually succeed in growing to Wal-Mart levels of sales, it will end up with a lot more employees than it currently has, though quite possibly still fewer than Wal-Mart.
Assuming the ratio stays the same, when Amazon gets to Walmart level sales, it will need about 700k employees which is still 1/3 of Walmart's current employee count.
It is important to consider that delivery companies account for the bulk of the people employed as a result of Amazon, though not employed directly by Amazon.
Self-driving vehicles will probably replace the need for most of these employees, however.
How so? Sure, a few drivers would be replaced. However, the last-mile driver is also taking care of the doorstep delivery. Even if you replace the driver, someone needs to finish the delivery/get signature/whatever.
Self-pickup/Drop-off wall of drop boxes ... mounted on a self driving truck that sends you sms 10 minutes before showing up, or better yet lets you schedule your own time and place.
Shit, with retarded patent system in US someone is already patenting this as you read my post.
There is no battery problem for truck-to-door. The truck charges between deliveries and spare swap-in packs pick up any slack if the duty cycle is too high.
I'm trying to think what you'd use compressed air for here, and the only thing I'm coming up with is some sort of parcel cannon, which while awesome does seem to have a few issues.
This. What people don't reLize is that 1/4 to 1/2 of amazonz biz is delivery. Which is why they are so focused on replacing fedex/ups/etc. Amazon fresh is their Trojan horse.
> That difference is partly due to different things being valued
This is misleading. All valuations are based on the discounted value of future cash flows. There are three variables at work here: today's cash flows, the growth rate of these cash flows and the discount rate. The market is simply saying that Amazon's growth prospects outweigh it relatively smaller size.
There is only one thing being valued by a rational investor: net present value of future cash flows.
Edit:
The only point I'm trying to make is that an investor, when they exchange money for a stock, is placing a bet on a single outcome: future cash flows. Of course there are plenty of ways to get those cash flows, but I find that most people get caught up in details like employee headcount and fail to grasp the single most important factor: compound growth.
Sure, but there are many ways to get future cash flows. A significant difference in the valuation of the two companies is that with Wal-mart, the expectation of future cash flows (and therefore present value) comes primarily from its present size, the cash flows that brings, and its expected ability to continue bringing in such flows. Whereas with Amazon, which has much lower current market share and cash flow, the market is "saying that Amazon's growth prospects outweigh it relatively smaller size". Hence the proportion of expected future cash flows that investors expect to come in the form of future growth is significantly higher with Amazon than with Wal-Mart. Therefore you would expect Amazon to have a lower current size and current headcount per unit present valuation, even if there were no differences in productivity.
What I was criticizing was just using the ratio of present market cap and present headcount as a meaningful metric, when comparing companies with very different growth expectations. That effectively becomes a restatement of the different growth expectations: Amazon has the same market cap as Wal-Mart but its present size is smaller in almost any way you could count present size (sales, headcount, etc.).
What I meant was that much investment is speculative, and that speculative investing is not solely, or even mostly, based on a purely rational model e.g. one that is based on a prediction of future cash flows.
It is usually based on betting on the the future price of the asset, independent of fundamentals. Some of these approaches are more justifiable than others: market momentum, qualatiative prediction of the company's valuation trajectory, trendy but questionable financial metrics, sophist technical analysis etc.
> There is only one thing being valued by a rational investor: net present value of future cash flows.
This only holds under the assumption of rational expectations.
Under the more reasonable assumption of heterogeneous expectations, it becomes necessary to think about what the market on average expects (or, possibly, other functionals of the agent population if the assumption of competitive markets is violated); the more so the shorter your investment horizon.
See for example
[1] F. Allen, S. Morris, and H. S. Shin. Beauty contests and iterated expectations in asset markets. Review of Financial Studies, 19(3):161–177, 2006.
which shows the failure of the law of iterated expectations (which is used to establish your original assertion) for the average expectations operator.
You then have
[2] P. Bacchetta and E. Van Wincoop. Higher order expectations in asset pricing. Journal of Money, Credit and Banking, 40(5):837–866, 2008.
who derive a gap between price and fundamental value (understood as the NPV formula that would prevail without the interference of higher-order beliefs) in the presence of heterogeneous expectations.
And last but not least,
[3] M. Kurz and M. Motolese. Diverse beliefs and time variability of risk premia. Economic Theory, 47(2-3):293–335, 2011.
who generalize this from the asymmetric information frameworks used above, where expectations are coordinated by the public signal, to a symmetric information setting where it is the correlation of beliefs that coordinates expectations.
In the end, this is all building on Keynes's original intuition that if agents hold diverse
beliefs about the future "the energies and skill of the professional investor and speculator are […] concerned, not with what an investment is really worth to a man who buys it ‘for keeps’, but with what the market will value it at."
So no, it is not necessarily the best strategy to only focus on NPV of cash flows. The shorter your time horizon, the more you depend on what "other people" expect too, whether you think them foolish or not.
_____________________
PS: Of course, if you believe that you have no predictive power w.r.t. what "Mr. Market" thinks (to borrow from Ben Graham's exasperated simile), then by all means your optimal strategy becomes to lengthen your horizon as far out as possible and concentrate only on NPV of cash flows, just as you said, in the spirit of value investing. I'm only pointing out that the optimality of this strategy hinges on both your investment horizon and your belief about your relative predictive powers w.r.t. "Mr. Market" and the fundamentals (leaving aside positive feedback loops or what Soros called "reflexivity" between price and fundamentals for now).
Rational expectations and heterogeneous expectations don't conflict with each other. Rational expectations only assumes that the aggregate expectation of the economy is an unbiased predictor.
Individual agents are free to be irrational, biased, and heterogeneous. In fact, heterogeneity is required in nearly any model, otherwise no trades will occur.
> Rational expectations and heterogeneous expectations don't conflict with each other.
Good point, although I didn't say they did. One can indeed view RE as a special case of heterogeneous expectations, and in fact that is essentially what I argue in a paper I am working on: That efficient markets are a region in the parameter space of more general market models, and that by traversing that parameter space one can generate different market outcomes. By way of illustration, take the public signal out of the above cited paper [1]. Without the coordination provided by the public signal the law of iterated expectations works again for the average expectations operator!
Regarding the source of heterogeneity, I don't agree with your citation of irrationality or biases. I am not an expert on behavioral economics but from what I understand, behavioral models seem very fragile to the insertion or presence of even a few rational agents, hence the need to erect "limits of arbitrage" by adding frictions, constraints, etc. It is possible to motivate heterogeneous expectations in a more robust way, see my reference [3] above and further references therein, for example. The basic idea is to generalize the economic system from ergodicity or even stationarity, so that heterogeneity is motivated epistemologically, rather than psychologically.
A rational investor knows how others value something and acts accordingly. What you described is one way to value something. If it was just you and me buying stocks, I would know how you act and get in front of your behavior to profit from it.
In finance you don't have to be the smartest person in the room to succeed, you just need to know the most about what everyone else is thinking.
Well there is a couple of things to consider there, one of which is that WalMart has everyone on its payroll between you and the product. Amazon does not. In particular Amazon doesn't count vendors who just selling through their platform, (they would be part of buyers/stockers at WallMart) Amazon doesn't count any of the delivery personnel for things like OnTrak etc. And at one point I thought the warehouse workers were actually subcontracted through another firm but I may be mis-remembering that.
Thus from a business perspective you get rewarded by keeping workers off your payroll, but I don't think it means people aren't working for you. The poster child for this is the 'sharing/gig/slaving' economy type places.
Because of that I am not convinced there is actually less human capital in moving the goods through Amazon or Walmart, but I do agree its accounted for differently. And that means I really can't agree with it as evidence to support the claim that humans should work fewer hours.
It would make for a great paper, maybe even a nice book, on comparing how many hours of labor are invested and how many people in getting a product from manufacturing to your hands using the two different product flows (and doing that for a representative sample of all products offered).
Walmart's number would also be significantly higher if they included part-full-time employees. Walmart has been known to keep employees just under 40hrs so they don't have to provide full benefits.
Well the governments actions in the last few years has more than encouraged companies to keep people at twenty nine or less hours.
That seems to be the new entry point for a lot of service/retail work. Get past the trial period and there may or may not be opportunities to move to forty
That's the case with Microsoft and Apple too, I expect many companies.
When I was a contract programmer at Apple In 1990 I was told that it hired so many contractors so it could inflate the ratio of revenue to employees, which would inflate the stock price. While Apple still had to report our pay it was some other kind of business expense, like office furniture.
A (non-tech) company I used to work for hired temp workers as a way for HR to hit some kind of "low headcount" performance bonus. It was terrible for everyone else, including the temps themselves.
You bring up an interesting aside (Not related to growth prospects or productivity improvements per se)
By Marketcap: Facebook > Amazon > Walmart
By FTE: Walmart(2.2 million) > Amazon (150K) > FB (10K)
I realize FB is not in the same business, but I wonder what view those picketing Walmart for unfair and unjust labor practices have of the 'new economy businesses' that are being valued higher yet employ fewer Americans. Do you protest the jobs that were never created ?
I don't know if it's funny or sad. Remember how economists predicted that productivity increase would lead to everyone being richer and having to work fewer hours?
It will happen, just don't expect "the invisible hand of the market" to do it. The mechanism for bringing about these benefits will be political in nature.
This is demonstrably false, and speaks of the "tyranny of averages". Yes, worldwide, huge reductions of poverty, largely in Asia, have let to increases. For the average middle class worker in the US, however, things have barely budged in decades. When you take into account growing inequality, and the fact that limited resources (like housing near city centers) will always go to the wealthiest, it's easy to argue the average middle class worker is substantially worse off.
See http://www.pewresearch.org/fact-tank/2014/10/09/for-most-wor... , and this quote: "In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today."
> "it's easy to argue the average middle class worker is substantially worse off"
it's also easy to argue that the typical metrics used in this comparison are misleading.
A "typical middle class worker" in the early 1970s lived in a house that was built in the 1950s or earlier, around 1200 square feet, 1 bathroom, 2-3 bedrooms, without air conditioning or a washer/dryer, and had one vehicle available to the household [0]. Nowadays, we consider that "the projects", undesirable housing for poor people, while the "middle class" live in considerably larger dwellings with more amenities.
The reason I mention this is that real wage / purchasing power comparisons almost universally use "average housing costs" as a significant part of the metric, and "average housing costs" are in no way measuring the same thing. (
It so happens that I live in my childhood home, which my parents purchased in 1975 for $32,500 -- about 3.1 times the national median household income. I purchased it from them in 2012 for $135,000, a mere 2.7 times the median income.)
If you actually compare the goods a median-wage worker can purchase today to the goods a median-wage worker could purchase in the 1970s, there are definitely some things we have a harder time affording (like routine health care), but with the majority of material goods, you can get much bigger/better/faster/higher quality stuff for the same portion of the budget [1]. A modern middle class income gets you much better than 40-years-ago middle class living conditions.
But all that better stuff Americans can buy is largely due to bigger household incomes from women entering the workforce. Back in the fifties/sixties, a single working class income could support a family of 4-5, comfortably. That's laughable today.
A single working class income can easily support a family of 4-5 in the sort of housing a family from the 50s/60s would have lived in, with the number of vehicles a family from the 50s/60s drove, etc.
If real waves dropped, you should be able to name a good or service (besides obsolete ones like land lines) which we consume less of today than in the past. In fact, most goods/services should satisfy this.
Anyone pushing wage numbers is playing a game of hide the salami, and ignoring the trend towards a larger portion of income being given in forms other than money.
Yeah, but "forms other than money" mostly means healthcare, which has skyrocketed - despite the fact that other developed nations with longer live expectancies have much lower healthcare costs.
More importantly, though, the Fed graph you show is an average (the real hourly compensation one). With growing inequality, using the average hides the fact the improvement for the median worker is much lower.
Yeah, but "forms other than money" mostly means healthcare, which has skyrocketed - despite the fact that other developed nations with longer live expectancies have much lower healthcare costs.
If you feel consumers are overconsuming medicine and driving up the price, there are lots of great ways to fix that. The most effective is high deductibles (currently illegal).
I know you are aware that life expectancy is minimally related to health care consumption, so why do you bring it up?
If you have data showing that median real compensation per hour is lower, show it.
And again, since household income has not moved much (according to figures I cited), you still need to provide an explanation for why we don't seem to consume less. (Hint: the basket of goods in CPI changes and $1 of chained-CPI adjusted wages today buys more than $1 of chained CPI adjusted wages 30 years ago. I.e., CPI != inflation in the long run.)
I care little for how much X has compared to Y. I do not see any use for the comparison, other than for media headlines.
I'd say that singling out smartphones is disingenuous. The advancement of every industry has caused the lives of almost everyone to increase dramatically, the advancement has also created a lot of wealth, which is also the byproduct of an increase in industry.
I've yet to see anyone explain empirically why it's bad that x has more wealth than y. I'm open to being swayed by data.
This seems to be the case as long as consumption continues to scale. I think you can come close to approximating a circa 1950's standard of living on very little income.
I'm not really sure if that's the case- I'd have to do a lot more research to know if my instincts are anywhere near accurate here, but I suspect that while most people these days have access to more luxury goods than people in the 50's, it's mostly because the cost of luxury goods relative to essential goods has decreased drastically. I think that food and housing are far less affordable for people these days.
1. You have to be careful how you define "luxury". The average house in 1950 was less than half the size of today's average house (even though the average household was larger), and not air-conditioned.
3. Healthcare is usually considered essential, and its cost has increased as a fraction of median income, but I would bet 1950's medicine would be dirt cheap today if it weren't illegal to practice it: no MRIs, no patented medicines, no chemotherapy, etc. What we get in exchange for the higher cost is a decade of life expectancy.
Perhaps it would be worth considering that in 1955 household income was generally earned by fewer household members than it is today. Probably close to 1/2. Would it be safe to assume, then, that's approximately how much less the average household bread winner earns in today's world?
EDIT: Here's a fancy chart I just found, thought it might be useful to make the point:
Also I'm not sure if it's a typo, but your comparison between "average income" in 1955 and "median household income" today seems to hurt, not help your point.
How about comparing median individual income, rather than median household income? That median household income in 1955 likely reflected a single individual income, whereas the median income today likely reflects two.
Yeah, I'm sure they aren't directly comparable. I'm just trying to describe my general feeling of "life as we know it" will somehow always manage to make itself more and more expensive, no matter how many productivity gains we experience. I'm skeptical of how a basic income can address this - wouldn't living off of the BI be equivalent to the frowned-upon practice of living off of welfare? I need to research this area more.
It's hard to judge stuff from today's world, where all the system is geared towards growth and consumption. But it wasn't always like this. there we're periods in history or different cultures when people desired different things, so there's no reason for it not to happen again.
As for real human needs , like healthcare - it seems to be that with technology ,at some point in time, they will be fully solved, so no need for further growth.
That's actually unevitable. Everyone is richer today (in a sense) than 100 years ago, and the quality of life and work has increased for hundreds of millions of people. Imagine all the people who do not have to work the fields due to machinery. Now we just need to further these advances and soon enough we'll have a world where most of the menial work will be automated. At that point there will be a revolution and the rich will be forced to pay a hefty 70% income tax to provide for the 70% of the population not a work.
But what part of that is just hubris or real estate investment? They arguably have enough people to run their retail and AWS operations and to expand those businesses without expanding people. A large portion of their other projects are just sort of grasping at straws to see if there is some sort of business there.
You may, possibly, replace one unskilled worker with two who work part time (but then where are the extra money going to come from?), but you know that Amazon doesn't have 154,100 unskilled labors and skilled labours can't be divided like that, which you should know well enough.
Amazon is only worth its current market cap if it can increase sales by at least 5x. Which it probably can, but it will take some years.
Wal-Mart is expanding into grocery stores, with their "Neighborhood Markets". (They mean big supermarkets, not convenience stores. Typical size is 45,000 square feet.) Wal-Mart has 40 square miles of floor space worldwide.
Direct revenue comparison between Wal-mart and Amazon makes no sense. Amazon revenues are a lot more diversified than Walmart.
Portions like AWS, Digital and 3P/FBA service revenues will have much higher margins than first party retail revenues (which is the most like Wal-mart revenues, except the margins are completely different due to no having brick-and-mortar stores.). Additionally, Amazon is a lot more international than Wal-mart so comparison is even harder.
All of this completely ignore the growth rates of these two companies.
Additionally, Amazon is a lot more international than Wal-mart
How do you figure? Compare this for Amazon:
Amazon has separate retail websites for United States, United Kingdom & Ireland, France, Canada, Germany, Italy, Spain, the Netherlands, Australia, Brazil, Japan, China, India and Mexico.https://en.wikipedia.org/wiki/Amazon.com
To this for Walmart:
As of January 2014, Walmart's international operations comprised 6,337 stores[1] and 800,000 workers in 26 countries outside the United States.https://en.wikipedia.org/wiki/Walmart
> Amazon revenues are a lot more diversified than Walmart
Diversified into lots of "nice to have" items. In a really bad economic downturn, Amazon would be wiped off the map. People would still be buying bread and milk at Walmart.
Amazon sells groceries now, too. I usually buy things from Amazon that I used to buy at Walmart. I think Amazon will be around for a long time, and Walmart's margins will shrink as competition becomes ever more fierce at the bottom end of the market.
When I need groceries and household supplies such as laundry detergent or toilet paper the last place I think of is Amazon. It seems absurd to have these things boxed, and trucked to my house in a UPS van that probably gets 5mpg when I drive right past a supermarket and a walmart every day.
Depends on what you need. You can buy olives at a supermarket olive bar for $9 a pound (wet weight), or you can buy 5 lbs for $4/lb dry weight (8 lbs wet/shipping weight, so $2.48 per lb measured equivalently) on Amazon and have them there in 2 days. There's also many goods you just can't buy in suburban/rural locations - my wife makes fabulous miso, but good luck finding 2 different kinds of seaweed and bonito flakes at your Walmart. If you don't have an Asian market in proximity Amazon is literally your only choice (and they're actually not cheap there). For pet supplies they drastically beat the selection of a Wal-Mart and drastically beat the prices of a real pet store (eg stuff like Feliway or Nature's Miracle).
Yes, for certain commonly-consumed heavy or bulky goods, i.e. anything that's either mostly air (like toilet paper) or mostly liquid (like detergent) they aren't your best choice. That's not all goods by any means.
Also you're comparing the mileage of a bus (the UPS truck) to a passenger vehicle. The UPS truck is delivering goods for a hundred other people on his run today, the gas spent transporting your package is an absolutely insignificant fraction of that. If you're really worried about ~my carbon emissions~ then you should really be thinking about ditching that car and getting yourself to work on one of those 5 mpg busses.
In Western Europe, grocery delivery is very common and supermarkets are struggling to scale fast enough. There is a stream of liveried delivery vans along my road every day, many more than all couriers combined.
In fact where I live Tesco recently raised their free-delivery minimum order threshold to try to encourage people to place larger, pre-planned orders.
You have to live in one of the selected areas for Amazon Fresh. I have addresses in three different states in my Amazon address book and none of them qualify.
Most of the stuff that you'd buy at a real-life grocery store doesn't make sense to order shipped from Amazon. Amazon as a replacement for WalMart only makes sense if you can wait a few hours for delivery and live in one of the selected areas for Fresh.
Thats more the market saying that the overhead of having stores, of having staff maintaining them, of maintaining a supply chain to stock them, and all the bureaucracy around that is not worth it. That just having a website and good distribution centers is enough, and Walmart thus has a lot of unnecessary overhead, especially when they have both the stores and their website.
There are still a lot of things Amazon does a poor job supplying, and having to pay $200 a year to get quick shipping is a severe stain on their practical use as a walmart surrogate for many people.
Free for Amazon Prime members!
Through the end of September, all Amazon Prime members in eligible zip codes in the New York metro area can use AmazonFresh for free. Sign in with your Amazon account to get started. If you are not an Amazon Prime member, you can start your Amazon Prime 30-day free trial today. After September, you will need a Prime Fresh membership (an upgraded tier of Amazon Prime) to continue enjoying free delivery from AmazonFresh. You will not be automatically charged for Prime Fresh.
A $500bn Amazon would be more valuable than a $500bn Walmart though. Walmart succeeds by being the low-cost leader, which inherently limits their margins. Amazon on the other hand has the capability to generate massive margins due to the network effect in it's marketplace.
Walmart Net Income: $15bn
Amazon Net Income: -$250mn
Despite that huge lead by Walmart in sales (5x), they're only left with about 3.2% of profit. Of course that's better than 0...but the interesting thing is how Amazon's value is predicated on what it can continue to build (as you've alluded).
Amazon is only worth its current market cap if it can increase sales by at least 5x.
The market disagrees. The market capitalization is set by what people are willing to buy and sell ownership of the company for. It is not set by the amount of revenue generated.
I don't know why this is getting down-voted. Amazon's enterprise value is about $220 billion, Walmart's about $275 billion. I.e. Walmart is worth about $50 billion more than Amazon.
One interesting thing is that Amazon is almost approaching Walmart's bad reputation in terribleness for employees. (Maybe not software devs, but perhaps warehouse contractors.) Is this kind of ruthlessness essential for such a huge company to be so profitable?
1) Zero paternal leave. This may lead to subconscious hiring bias for men b/c you know they can't take paid leave. I'm surprised the S-team permits this, but I think they're all male anyway.
2) No free lunch ever. Facebook and Google both have them. Microsoft has free snacks I think. Several Seattle companies have catering on Friday. The Amazon Silicon Valley office has them only because there would be a revolt if they didn't. (Oh sorry, there's rumor of free ramen noodles on some floor in Blackfoot maybe)
3) On-call for all devs.
I think reddit had a thread series last year showing off what interns got at Microsoft, Google, etc. At Amazon, interns get to keep their backpack when they leave.
Sure, maybe those facts imply that developers at Amazon have it worse than developers elsewhere, but I wouldn't exactly characterize any of them as Amazon being "terrible" to employees.
I don't think that's fair. Free lunch isn't 'free', it's just part of your compensation package. At least some SV companies don't have it - I'm pretty sure Apple doesn't.
If someone asked you if you'd prefer an additional $500 per month or free meals, what would you say? I imagine it'd be at least a toss-up.
On-call and paternal leave aren't great, but again, it's a factor into a job decision.
I guess my tacit assumption is that most people who get dev job offers from Amazon also get job offers from other places (or could if they so chose) because the job market for CS is so good. So if they take the Amazon job, they must think that the lack of niceties is outweighed by either the pay or the work they'll do.
This probably won't be the case for their warehouse workers, who might in many cases have a choice between Amazon and unemployed.
I don't know about you, the last offer letter I got had on page 1 the specific details (salary, options, whatnot) and on page 2 the perks (which included meals).
It's implicit. When you weigh up job offers, you look at what the job gives you; the busywork and the compensation. Perks are a clear part of that compensation package; the perks are part of the pay.
Yes, you should absolutely view a company that offers free meals as giving you an extra $amount you spend on food each day, or you should subtract the same amount from a company that doesn't.
2) I approve of this. Have a cafeteria with cheap food, great. But I eat healthy, I don't want my workplace dumping pizza on me every day. Let me make my own food choices ;)
3) As long as total comp reflects it and it is not abused, seems reasonable. i.e. better not be more than 1 3am wakeup per year.
Where I work now (Seattle branch of very famous SV company) you fill your plate up buffet style from a daily rotating selection that includes usually 2 vegetable dishes, 2 starches (usually rice and potatoes), and a few main course options (at least one is always vegetarian, usually vegan).
There is also unlimited free fruit/snacks at all hours. In short it's very easy to get a balanced meal containing whatever amount of each macronutrient you want.
Bonus: the food isn't five star gourmet but it's usually pretty good at least.
Okay so I was a bit slippery slope with the pizza comment.. but I really do eat different from the average American, and am generally not well catered to by any food program I have ever seen (which is totally fine - I don't expect anyone to bend over backwards for me). But, I would totally rather make $200 more a month than be given "free food".
Why not give everyone $200 a month and then sell the food for near cost ($4 a meal or whatever)? No matter what you do, some people are not going to consume it.
Amazon doesn't treat software devs very nicely either. I mean, it's certainly better than warehouse employees, but devs are treated as highly disposable cogs.
Friends of mine have been software developers at Amazon. They are well-paid, but evidently that did not make up for other aspects of working there. Apparently Amazon can be a great company without being a great place to work, at least relative to technology companies.
I remember reading about Amazon making warehouse employees sign a non-compete agreement - a stipulation that was rather quickly reversed after The Verge and other publications exposed it. What other examples of terribleness have you read about?
There are articles on how horrible the warehouse conditions are. (For example, http://www.motherjones.com/politics/2012/02/mac-mcclelland-f...). Note that I'm not trying to condone that perception, just merely observing that it exists in tandem with Walmart's (whose problems are well-known).
This came up on reddit a while ago; the general tone of the conversation I got was that it really depends on which warehouse you're working at, some had horrible managers and others had really good working experiences. It's still strange that its like that though.
This was a long time coming. 20% growth on a business that is approaching $100B revenue (and probably 2-3x that in terms of GMV, a better measure of its size and dominance), and AWS continues to grow as does the digital side of the business. The crazy thing is that they still have low market share in several of the retail categories that its in (apparel, grocery, several product lines even in home, health & beauty, electronics, etc.)
Their achilles heal though continues to be browsability and searching. It is obviously a great place to go if you know exactly what you want, but continues to be a poor experience if you are browsing for an item or don't know what you want. There continues to be duplicate listings for the same items (some listed by 1st party and some by 3rd party), and it is very tough to browse items. Once they actually figure this out and implement, that's when this will really become game over (at least domestically)
One thing I note is that their recommendations aren't terribly smart.
I mean, I bought a coffee table through Amazon a few months ago. After buying the table, for several weeks it kept showing me coffee table recommendations. I would think Amazon would be smart enough to try and sell other living room furniture or things to put atop the coffee table I just bought, rather than trying to sell me more coffee tables.
Their recommendations feel to me like the recommendation engine is still more or less the one they had when they were mainly an online bookstore. So they assume you want things similar to the item you bought: other novels in the same genre, nonfiction books on similar subjects etc. Works fine for books, less well for coffee tables.
Every year around burning man time it "notices" that I'm buying supplies for burning man, and starts recommending me things like baby wipes, which are completely unrelated (naively) to things like lag screws, rebar pullers, etc.
I suspect that's the impact of other burners also shopping, generating a good list of "people who bought A and B also bought C, D, E...". As soon as you hit A & B, you trigger the rest, while the average person doesn't.
It makes the idea of a trying-to-be-helpful AI scarier. Imagine a post-scarcity world in which you merely have to ask for whatever you want and it'll be delivered to you for free, but everyone still lives in squalor because if you ask for a coffee table you'll instead get one of every type of coffee table ever made and then starve to death in your house because the food delivery drones can't fit through the wall of coffee tables.
> Their achilles heal though continues to be browsability and searching. It is obviously a great place to go if you know exactly what you want, but continues to be a poor experience if you are browsing for an item or don't know what you want. There continues to be duplicate listings for the same items (some listed by 1st party and some by 3rd party), and it is very tough to browse items. Once they actually figure this out and implement, that's when this will really become game over (at least domestically)
Their catalog is getting so bad that I can't even find things when I know exactly what I want.
So Walmart's operating assets are worth more than Amazon's. I still think the headline is fair. Usually when we speak of a company's value, we mean the entire company including non-operating assets and liabilities.
I am finding myself using Amazon less and less. For years it's been my goto for long tail items and books, but over the last few years it's algorithms have segmented me into the "show high margin prices" bin to the point where I pretty much see prices that are competitive with my local big box and Amazon jacks up the shipping on anything in the first few pages. I guess I shouldn't have used that $30 credit for getting one of their credit cards a few years ago...or paid it off each month, because now Amazon's first order of business appears to be clawing all my previous savings back.
Not that I take it personally. Amazon went down the path to breaking trust when they came up with Prime. What does it say other than give us money so we won't charge you more. Time, gravity and a slippery slope mean that logic ultimately becomes dominant without heroic efforts of corporate culture. Sponsored ads don't create a culture to help anyone within who might be trying to fight the slide. Hell, Amazon is even in the textbook rental business screwing college students.
The problem for Amazon is that they don't have good locations locked down. Six letter .com domains aren't prime real-estate. All they have is the quality of the sales experience, and the more convoluted shopping for value becomes the better competition looks.
You do realize you're making this comment at a time where every major Amazon metric is pointing up? I'm not disputing how you feel about Amazon but it seems pretty clear that you're the exception and not the rule. Amazon is currently firing on all cylinders and rather than making bad decisions over the years seems to be enjoying the benefit of making good decisions over the years.
Sure. There was a time when all indications were that McCaffee AntiVirus was a good idea too. It persisted after Microsoft released Security Essentials and Windows Defender and just last week I talked with someone who was thinking about switching to Mcaffee from Trend AntiVirus because their Windows box was having issues. My point is that once Amazon stopped focusing on growth via value for all customers, they may have mortgaged their future. A string of mediocre experiences outweighs a long run of positive ones over many many years.
And Ebay, now my first choice long tail shopping stop, has gone the other direction. They've made the experience better and more straight forward and I don't find a $7.42 charge for shipping that should be $2.99 at most at the end of checkout because the shipping is listed right with the item. Or to put it another way, Ebay's business model isn't built around the idea of seeing if it can get away with something.
The problem is when trying to get away with something gets baked into the algorithm, it's hard to take out of the company culture. Unlike Amazon, sometimes I drive past Walmart. I don't accidentally type "amazon" into my browser bar. So Walmart is more likely to get a second chance just due to physical precense. Amazon, has nothing but its name and it is organizing its business model toward download.com. Sucking is not a good long term business model.
I find Amazon to be screwy less than 0.5% of the time. I have ordered 209, 223, 149, 127, 207, and 73 (YTD) physical items from Amazon in the years 2010-2015 and as far as I can tell, they're getting better, not worse.
I ruthlessly use camelcamelcamel and place items in my cart saved-for-later when I care more about price than speed. Amazon gets maybe a 2% "leeway" for me, because I know I'll get great customer service if something turns up screwy with the order.
I do agree that Ebay has really turned things around for the better starting about 18 months ago, and I find myself ordering a lot of items from Ebay that previously would have come from Amazon or AliExpress, especially inexpensive Chinese-sourced electronics components.
I value Amazon for the reviews and the hassle-less ordering for years now. I seen prices in local stores sometimes be competitive and sometimes be twice as much.
I use the Amazon mobile-app to check reviews or compare prices of local items (it uses phone camera and is very fast), and I use http://camelcamelcamel.com/ to sanity check the items I wanna buy from amazon.
Same here, but I've always wondered if they manipulate reviews. Obviously, crappy reviews on high margin items and good reviews on a different brand of the same item but with low margins are bad for Amazon. I've never seen anything that would lead me to believe they remove reviews but having 100% honest reviews could be hurting their business. I hope to hell and back they never compromise the integrity of their reviews, but I wonder if it's something they've thought about or are currently doing without our knowledge.
Amazon doesn't have to remove reviews. They can just show the five most productive one's on the product page. Given that for many items Amazon has multiple listings of the same thing, they can just put the one's most to their advantage upfront. Amazon can create (price . review rating) anchor points by ordering the listing on the search results page.
To put it another way, if you're shopping the most relevant result for ten listings of X is the one with the lowest price. That's not however what "sort by revlevance" seems to mean.
I've been using Amazon from the days when it was little more than a book store and had a similar experience, though I've never placed a real high value on reviews. That's why I noticed that there was a change and that the change was taking advantage of my habit.
Five years ago, there wouldn't have been a reason to compare the Amazon price to your local price. Amazon would have been clearly a better deal on everything except how fast you could have it. That was the fundamental proposition, better price for latency. Now the calculus is more complex and Amazon has deliberately chosen to make it so.
I just don't understand why Amazon.com stock is so high. Bezos has stated time and time again that he intends for Amazon.com to never make a profit and to never pay a dividend, always folding all of the earnings back into the company for future growth. There is no logic to its value.
Clearly people think that Amazon will take over the world -- literally -- and their only method of influencing their new overlord will be to have shares to vote.
That's a joke.
Presumably the ultimate belief in the value is either that Bezos will eventually share some value of the company, or that Bezos will retire or die and it won't be his decision, or that stockholders will force a value-sharing over Bezos' objections (he does not, after all, have a majority).
Not necessarily. Amazon aspires to have 100% of market share where it competes, or very close to.
Other companies don't aspire to even 50% of market share. See Apple for example. They are happy to have the premium segment locked in and reap the profits out of it.
Buyers anticipate the stock price will rise, and that they can sell it to someone else for more money in the future. More specifically, they're predicting the return on this investment will be greater than the interest they'd earn in the bank. They might be wrong, we'll see.
1997 "Lee Scott, the future Walmart CEO who was then running logistics told Dalzell (who Amazon was hiring) that Amazon was a novel idea but that it had limited potential. Don Soderquist, Walmart's COO, said that because Amazon didn't store its own iventory--at the time, it just ordered it from distributors and then quickly shipped it back out-- the model would hit a wall once it got to $100M in sales.
Wal-Mart's Q4/2014 net income was 16,363,000 and they have a P/E of 14.6.
Amazon's Q4/2014 net income was -241,000 and they had a P/E of, well, they didn't.
I think Amazon has been one of the most innovative companies of the last decade, but Amazon is going to be a much less attractive consumer option as they start transitioning to business models that require them to actually profit.
I could steal all the lawn mowing business in town if I were willing to mow lawns for free...
Do you realize that their lack of profit is not because they can't profitably sell things at current price points? The lack of profit is due to reinvestment in the business.
It would be more like if you were mowing lawns at a very small profit and using that profit to continually buy more lawnmowers and trucks and eventually investing in developing my own, more efficient lawn mowing technology. Each summer you lose a little money but after 50 years you now are mowing 50% of the lawns in the US and doing it more efficiently than anyone else is capable of.
Software R&D (especially for new initiatives) is typically not capitalized so if a lot of investment is in software than it would show up as operating expenses rather than capex.
I got an idea: build the software, synthesize it into a chip with almost no mask cost, buy the chip, run it in production (as a standby), use the "software version of the chip" for production, and write it off as hardware investment (capital).
Even when software R&D is capitalized, it's often capitalized over just 2 years, so the net effect is close to expensing it, assuming this year's expenses are reasonably close to last year's.
>Accounting doesn't work that way. You can have huge profits and reinvest them, but your income statement will show the profits in any case.
Sort of. I mean, I'm not a tax expert. but i do pay taxes on a bunch of money that, from my point of view, I re-invested in my business. But certainly not all of it.
My understanding of why you end up paying tax on money you re-invest into the business is depreciation.
The idea behind depreciation is that you write off the object as it loses value. So if computers last 5 years (and that's kinda the messed up part, the IRS kinda arbitrarily decides how long something lasts) I write off 1/5th the first year, 1/5th the second, etc... I still get to write off the full value of those servers I buy, I just can't write it off the first year, which means I end up 're-investing' out of post-tax money when I'm just starting or growing.
As an aside, if you have these sorts of problems, get a tax expert. Accounting is at least as deep as programming, and unit testing in accounting, while possible, is super expensive. It's not something you want to seat-of-the-pants.
When you are an S corp, it's super irritating, because 4/5ths of what I paid for servers is marked as income for me, and I've gotta pay taxes on it, which suucks when you have been scrimping all year to pay for servers.
Note, this is part of the "value" that leasing companies offer; It's common for companies in my business to lease their servers, and you write off your lease payments against income in the same year as you make the lease payments.
But from what I've seen, leasing increases hardware costs between 2x and 4x, and is way less flexible, so even if you have to pay tax on all the money you spend on servers, you're still usually coming out ahead. And buying, generally speaking, requires a lot less planning.
but on the other hand, if I hire someone to write code for me? that comes out right away, pre-tax, no depreciation, assuming I earn the money and spend the money in the same year. - so if I want a new software platform? I get to build it entirely using pre-tax money.
(Note, things get way more complex from here; Accounting is a complex thing and I probably don't have a strong enough grasp even as just a businessperson, much less as an accountant. But this is the basic idea on why re-investment money is sometimes taxed.)
I never thought I'd be in the position of defending the tax system, but ...
Regarding depreciation, I thought there were a few other factors that keep the IRS from arbitrarily deciding how much something lasts:
1) If you sell it, you get to treat it as having depreciated to that value (assuming arms-length and all), not the scheduled one.
2) If you can demonstrate a liquid market, can't you use that as the current value?
Also, for counting 4/5th of servers as income, isn't that mitigated by how you're really paying taxes on the income used to buy the servers? The point of that was to make it so that you're taxed on changes in the book value of your venture.
So if you make $1000 in profit and immediately spend it all on servers, you still made $1000 in taxable profits and that's what you're being taxed on, which you should count the taxes on before buying more capital goods.
I didn't mean to say that taxes are bad. I like civilization, too. I mean, I don't like paying taxes any more than anyone else does, but I prefer living in a state with taxes than in one without. Don't get me wrong; I'm not going to pay more than I have to, but I'm also not going to take risks on things that are maybe legal, and maybe end up with a bunch of debt that can't be cleared by bankruptcy. Student loans and screwing up your taxes. Stay away from both.
In fact, I'm incorporated in California, none of the "I have a condo in vegas" tax dodges so common among people who do corp-to-corp contract work, and most of my labor is done by people paid as employees, you know, paid on W2s, rather than as contractors. I play by the rules to the best of my ability.
>So if you make $1000 in profit and immediately spend it all on servers, you still made $1000 in taxable profits and that's what you're being taxed on, which you should count the taxes on before buying more capital goods.
Assuming it's a capital good that depreciates to near zero (and it's more complicated than that) the depreciation is written off against revenue as a cost, just like payroll. Unlike payroll, it's not all written off at once.
If you stay in business long enough, then yes, nearly all your capital goods are eventually all written off against your revenue.
The problem is that as a growing company, you have to buy shit out of post-tax money at a time when there's a much bigger chance of you being around next year to pay taxes at all if you can write off the whole cost of your depreciating capital purchase up front.
There are also a bunch of small-business loopholes here where you're allowed to write down the whole value all at once, all of which I don't really understand. As you point out, there are also ways of writing off your stuff on schedules different from the official IRS schedule, which I also don't really understand (and I suspect you don't fully understand either) - It's really, really complicated; the IRS doesn't often give you clear guidelines; when they do, it's usually best to follow those guidelines.
Mowing 50% of lawns in the US means nothing if you still net a loss. When do people stop basing valuations based on the hope Amazon will make a profit? Hint
If the only reason you're operating at a loss is that you're spending everything you make on gaining new customers, then you just stop reinvesting and are immediately hugely profitable.
Call me old fashioned, but I "value" profitable companies more than unprofitable ones. Amazon had a net loss of $241m last year[1], while Walmart had a net profit of $16b[2].
Seriously, guys, all this "Oh, well, I disagree with the valuation of this company" stuff isn't very interesting. We all know that sometimes the market gets the value of companies wrong. Probably if Amazon's next quarter is not very good, its valuation will go back down.
And trying to make a virtue of extremely simple analyses of company valuation is also silly. It's not like you're revealing a deeply held secret that Amazon is very low-margin and often runs a loss. It's not like people don't get that. They've decided that Amazon has other virtues. Maybe they're right and maybe they're wrong, but I'm really confident that looking only at net profit as your sole method of valuation is a losing stock market strategy.
> I'm really confident that looking only at net profit as your sole method of valuation is a losing stock market strategy.
I'm not sure investing only in highly profitable companies would result in a "losing stock market strategy" (assuming "losing" means underperforming the S&P 500). Just looking at the ten most profitable[1] eight of them (all but Chevron and Walmart) are among the most weighted in the S&P 500 (in fact they're the top eight), Apple alone makes up 3.84% of the index. Combined these eight seem to account for about 15% of the index[2][3].
That's only looking at eight highly profitable companies in an index of 500 and it's 15% of the index! I can't imagine a portfolio of the 20 or 30 most profitable underperforming the index considering they would make up such a large part of the index itself. [Though it would be interesting to see historically what the performance would be of such a portfolio].
That's not "a portfolio of the 20 or 30 most profitable" companies vs the S&P 500. That's a portfolio of ten companies that were at one time the most profitable and then not regularly adjusted compared to an index that was updated regularly (only 312 companies in the index in 2005 were still in it in 2015[1]).
A realistic portfolio to prove/disprove your theory that investing in highly profitable companies is a losing strategy would be to take the 25 most profitable companies (I said 20 or 30 so let's just go with the middle) and update it every year.
With only the eight most profitable making up ~15% of the weight a portfolio of 25 is probably going to approach 30%. It's hard to imagine the largest components representing nearly a third of the index weight are going to move completely and drastically divergent to the index as a whole.
Sure, but first you go put all your wealth into AMZN for the next ten years and don't touch it. Think you're any better off from Walmart over that time frame? Valuations are fickle at best. At some point, money needs to be made.
For a 25-30 year time frame AMZN will beat S&P and Walmart by several X. AMZN, GOOG are companies which will have a huge impact on how we live. I have put some money into them. They are Berkshire Hathaways of our time.
25-30 years is too long to predict anything when it comes to tech. The Chinese already have their versions of Google and Amazon...and just like the Japanese automakers in the 70's there is nothing to suggest they can't displace either Amazon or Google.
Also what happens tomorrow if you don't have to go anywhere to buy most products, but just fabricate it at home or at the local fab down the road as Neil Gershenfeld predicts.
Financial analysts have been harping at Bezos for the need to make profits or see his valuation tumble since 1998-1999, when he invested an obscene amount of money in expanding his infrastructure.
That's more than 15 years. So far he has been proving them wrong.
> e.g. He was supposedly an idiot for selling books online.
By whom? Everyone I know who first used Amazon back in the 90s thought it was a great idea.
I think it's weird how we've fetishized the idea that "everyone else thought that business plan was crazy except for the visionary founders."
If anything, I'd argue these founders are "geniuses" because they executed better than anyone else at the time, not that everyone else thought the idea was crazy.
I don't necessarily disagree with the strategy, but I'm not sure that's Bezos's own game as far as his personal finances go, or that his game is even that long in that respect. Bezos owns an 18% and declining share of the company, which he has been slowly liquidating. He owned 41% when it went public, and has been steadily selling around 1% of the company each year. So his own fortunes are becoming less and less tied to those of Amazon, except in terms of ego/reputation.
Accounting profits are too easy to manipulate. Valuation experts prefer to look at cash flows.
Here's a precocious '09 writeup on AMZN from an analyst at Andreeson-Horowitz.[1] He points out how Amazon's re-investing CF's to finance capacity, warehouses, real estate, etc. This is instead of realizing accounting profits.
edit: it's worth pointing out that AMZN could be one of the most profitable companies (accounting profits) at the flick of a switch if it diverted its CF's away from capex and internal investment. Its CF's have been enormous for quite some time.
The stock market tends to value growth very highly (probably too highly). Amazon is growing faster than Walmart. Not that I disagree with you on how to "value" a company, but the stock market thinks the expected future growth of Amazon is more valuable than the current profit of Walmart.
It's really not smart to count that against Amazon. Amazon doesn't run a profit because it believes it can better utilize the money to invest in its business. If that's actually true, it's way more valuable than spinning off cash. Being able to reliably convert large sums of money into substantially larger sums of money is an extremely high value talent.
profit is irrelevant. their capex is $1B-$2B per quarter. they could lower their capex at any point and show a few hundred million dollars net earnings. the point is that they are as big as they are and continue to invest in the future, and hence the insane p/e ratio and stock price
It seems like Amazon is in a position where they could turn a huge profit, they're just choosing to reinvest instead. If they just raised prices by something tiny like 1%, wouldn't their profits become instantly massive?
If consumers were insensitive to that hike, yes. Problem is they aren't, which is why Amazon has to keep reinvesting and operating on that razor thin margin. That strategy is as bad for individual companies as it is for the macroeconomy (Asian tiger bubble comes to mind).
As someone who shops at both Amazon.com and Wal-mart, this makes me happy. Now, I don't know if their worth translates to more success but all I know is that my experience with amazon is always pleasant and convenient whereas my experience at Wal-Mart is almost always unpleasant and inconvenient.
I have mixed opinions. I find dealing with UPS/Fedex delivery attempts almost as infuriating as dealing with traffic and the Wal-mart store. On other angles: Wal-mart's browsability and prices are better, but Amazon's selection and ability to find specific items are better. In some specific areas the contest is much clearer: Amazon is much better for books, Wal-mart is much better for household supplies, etc.
I'm in a strange circumstance where the USPS won't normally deliver packages to my house (I'm on a major road). UPS and FedEx both will. The exception is on Sundays, when the USPS normally doesn't deliver to anyone, except Amazon pays them to. On Sunday, they'll deliver packages to my door. So to have true convenience, I actually TRY to get my Prime packages delivered on Sundays. That's just weird.
I think AMZ's endgame is to own the whole pipeline end to end.
Using third party sellers has been a good way to get the scale underneath them but 10, 15 years down the road I fully expect the most profitable and in demand items will be sold direct by amazon itself.
On a side note currently three biggest companies by market cap are Apple, Google and Microsoft leaving behind the likes of exxon and berkshire. This is truly a rare event when all top three are tech.
Either a glimpse of a bubble in making or tech truly is the new oil.
Walmart.com is wholly owned by Walmart (it is merely a division of Walmart, actually, and not a separate entity of any sort), and we're talking about market cap, so...according to this article, Amazon is worth more than Walmart and Walmart.com.
yes the measure they are talking about is market cap, not sales. the market cap for Wlmt includes sam's club, walmart.com, etc.
In terms of total sales, Wlmt (including subsidiaries) is close to $500B, while Amazon is approaching $100B. However, Wlmt.com (domestic) is only ~2% of total sales times $288B total domestic sales so only ~$5B sales
The Walton family hold a bit more than 50% of Walmart shares. This is by design. As they control the board, they usually make sure that Walmart buys back enough share to keep them in control. Their income are mostly coming from dividend, which amounts to a few billion a year :) It is possible to argue that this basically prevents Walmart from taking risks in more innovative business lines.
Jeff Bezos holds less than 20% of Amazon now, but he basically "owns" Amazon for all practical purposes. I'd also say that at least 20% of Amazon valuation is based on Bezos being the CEO/President/Chairman of the Board.
That's an odd sentiment. Walmart is more distributed just because Sam Walton was dead. As the time he was alive, it's even more concentrated than Amazon has every been.
Why does it matter? This is probably true for most VC backed companies. Founders have loins share of equity. Why is it unfortunate? This is how VC backed economics work or more generally how capitalism works. Risk takers reap most rewards.
Amazon Full Time Employees: 154,100
Walmart Full Time Employees: 2,200,000
(Based on Yahoo Finance Company Profile Stats)
There is a growing need for Human's to work Lesser Hours going forward rather than more Hours.