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Amazon to buy Whole Foods for $13.7bn

     
1:15 pm on Jun 16, 2017 (gmt 0)

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[bbc.co.uk...]

Not really ecom, but where else do you put it?
1:30 pm on June 16, 2017 (gmt 0)

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Yep, wanted to comment here.

Amazon now owns over 50% of ALL ONLINE COMMERCE in USA.

Which is extremely dangerous for the rest of ecommerce.

I guess that does it for me. Rarely went to Whole Foods , but I don't plan to be in Amazon's Warehouse at all. Probably chinese counterfeits labeled "food" and "organic" are coming up.
7:23 pm on June 20, 2017 (gmt 0)

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I am going to make a prediction here.

I think Amazon , having no cash and bleeding it for 10+ years, only to show $2 bln "profit" via non-GAAP manipulations, is being set up for a failure.

But who has the money and does online retail best? Walmart hairs have close to $140 Billion.

I think Walmart will buy Amazon when Amazon fail.
7:52 pm on June 20, 2017 (gmt 0)

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@smilie What?
Amazon , having no cash


According to Amazon's financial statements at the end of last quarter they had:
Cash and Short Term Investments:21,531.00M

What planet do you live on where 21.5B in cash == having no cash?
8:58 pm on June 20, 2017 (gmt 0)

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It's not unlike the Washington Post acquisition. Bezos seems to like buying underperforming but strong brands, and turning them around. Seems to be working for the Post (in terms of readership at least).
9:29 pm on June 20, 2017 (gmt 0)

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@NickMNS, it's watch what I do, not what I say.

Amazon operated 10+ years with losses. The "cash" came from somewhere in Billions.

They have only been profitable for several years. Last quarter they made, I think $2 Billion. You don't collect $21 Billion by losing billions for 10 years.

What they did is they changed accounting. Everyone who is Too Big Too Fail is allowed to use funny money, non-GAAP accounting, versus real money GAAP (General Accepted Accounting Principles) accounting .As soon as you see non-GAAP - and everyone is doing it , all your favorite stocks do - expect accounting FRAUD.

In Yahoo Finance, they are showing 0 income in 2014, $0.5 Bln in 2015 and $2.3 Bln in 2016. There is NO $21 Bln or whatever other funny monopoly money is shown elsewhere:
[finance.yahoo.com...]

Here's where you are confused, and since I run an ecommerce I'll help you:
Revenues: $142.57B
Total Cash (mrq): $21.53B
Operating Cash Flow (ttm)$16.81B << needs for operations, otherwise collapse
Levered Free Cash Flow (ttm) $10.51B << cash that isn't already guaranteed on other obligations

When you run an ecommerce, you have to have some cash on hand for operations. Typically 20%-50% of your revenues are going to be COGS, Cost of Goods Sold. Because you have to buy something to sell something. In Amazon's case it's 15% (Total Cash). And out of this, $16BLN is operating cash... and only $10.5 Bln (7%) is something that's NOT already other obligations. AND they also still have to buy chinese trinkets to sell to you.

There's no free, available cash.

They do have $400+ Bln of shares, which they are quickly diluting and selling on the market. That's management's and banker's way of making big bucks.
10:36 pm on June 20, 2017 (gmt 0)

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Where I'm at Amazon is trusted explicitly. They furnish free WiFi in many hotels, coffee houses & restaurants. They have pick-up lockers in all 7-Eleven stores and I constantly see Amazon delivered packages in both my office building and in the building where I live.

Amazon Prime Shopping delivers food & other items all day, all around the city.

Whole Foods, because of over-pricing and general snobbiness, has been a dog for years.
10:45 pm on June 20, 2017 (gmt 0)

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Yes and no...

If you look into the logistics of it, it makes a lot of sense. According to one article I read, Whole Foods has distribution centers (including cold storage) within 30 minutes of 80% of the country's population.

I'm sure Amazon is big enough to be able to extract extremely favorable (for them) terms for merchandise- I suspect that a lot of their inventory is on consignment (Amazon pays the wholesaler for the merchandise AFTER Amazon sells it). They also do a lot of transaction for items through 3rd parties, so they never even touch the products directly (so no COGS).

Using other people's money to acquire another business isn't uncommon. And many of these deals are not 100% cash funded- stock often makes up a big chunk of the deal. So there's no reason to expect them to need that much cash on hand to make the deal.

Of course, now that the offer is out there, Walmart or others may try to outbid them, so Amazon may need to pay more.
1:40 am on June 21, 2017 (gmt 0)

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@smilie

Here's where you are confused, and since I run an ecommerce I'll help you:
Revenues: $142.57B
Total Cash (mrq): $21.53B
Operating Cash Flow (ttm)$16.81B << needs for operations, otherwise collapse
Levered Free Cash Flow (ttm) $10.51B << cash that isn't already guaranteed on other obligations


With all due respect I think you are confusing things. Revenue is an income statement item, total cash a balance sheet item and Cash flow, cash flow statement item. You cannot mix these things up.
Cash is cash. You can make cash appear or disappear to some extent using accounting smoke and mirrors but that is usually pretty evident. Either you have cash or you don't.
So let's look some common ways to "cook the books"

1- Go to the bank or other financial institution (loan sharks), and take out a big loan, and then voila! you have cash, but that is evident on the balance sheet. So let's compare
Cash + Shrt investments / Total liabilites Amzn: 21/60 or 1/3, WMT (walmart) 6.5/126 ~1/20, COST (Costco): 5/25 ~1/5. So if anyone is borrowing to hold cash it is Walmart.

2- Sell inventory and don't replenish the shelves. This great sign for company that is in financial trouble. But in this case we need to be cautious, because Walmart has many stores which require merchandise as does Costco, but Amazon doesn't. So let see if there are any sudden drops or downward trends in inventory. So Amzn has steadily increasing inventory over the past few years, which is inline with an increase in sales. Costco and Walmart both have steady inventory levels.

3- Another way to accumulate cash is to sell shares of the company or sell other assets. If you check the cash flow statement, you can see this under cash from financing and investment activities . For both these line items AMZN show negative values, as do Walmart and Costco. So no cash here.

So what is up, where is the cash coming from. In the previous year AMZN had 16B in cash from operating activities, of which about 20% went to paying debts. Walmart had almost double at 31B but paid out 18B to share holders and creditors.

So lets recap, Amazon has highest Gross margin ratio of any of the three, this is due largely to the fact that it holds minimal inventory. The money it makes is reinvested as the company pays no dividends and has little debt. Compare this to Walmart, they pay out a lot of money to share holders and creditors. So of the two, I think Amazon is in a much better position to take on a venture like this one.

Remember, as Life in Asia points out, in many transactions that are processed by Amazon, they never touch the goods, they simply connect buyer and seller and take their fat cut.

From what I have heard, there are many great reasons for this transaction with Whole Foods. The most credible is that the many of the Whole Foods locations are centered where Amazon has many Prime customers. Simply having a physical location, where customers can return or pick-up goods can be very beneficial. Then once in the stores, any additional transaction is free money. Specially when you consider self check out. In my opinion this is brilliant and scary all at once (at least on paper). Now these things rarely go as planned, so who knows, maybe Walmart will be there to pick up the pieces.

Sorry one last disclaimer, this transaction has just begun, so it is entirely possible that Amazon may choose to finance the transaction by borrowing, or scaling back on inventory or selling more stock, there is no way of knowing what will come, accounting always looks back. Stock markets tend to look ahead, and the share price is holding strong, but the market have been known to get it wrong sometimes.
8:35 pm on June 21, 2017 (gmt 0)

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@NickMNS , it's the opposite.

Amazon was losing billions for 10+ years. Never made money outside of last 2 years, and they are questionable.

Walmart is owned by Sam Walton's heirs who have combined, between each other , close to $140 BILLION, cash+stock. You can check this by various lists at Forbes etc.

When Bezos is on Forbes list, it means he sold or MAY sell his stock. That's all there is to it. There are no magical billions anywhere. Amazon never made money in the long term other than occasional accounting tricks. Ecommerce where you push prices down is a tough business with low margins.

>> it is entirely possible that Amazon may choose to finance the transaction by borrowing
My point exactly. They have no cash. If they take $10 bln or more out of their operating cash they will go belly up tomorrow or would have to borrow from banks yet again to continue operation.

>> Walmart had almost double at 31B but paid out 18B to share holders and creditors.
Walmart pays out owners - billions - from profits. Amazon has no profits. Last two years were the only 2 that Amazon had any in the B (as in "billions") category.

>> in many transactions that are processed by Amazon, they never touch the goods, they simply connect buyer and seller and take their fat cut.
Same for Walmart. Same for Sears. Same for eBay. Same for 10 other smaller places, even Best Buy dropships. Everybody and their mamma dropships. Even I dropship "and get paid upfront and never touch goods", maybe I need to sell $400 Bln in stock?

I really don't specifically like Walmart and I would never EVER shop there. But what they do have is billions in cash. That Amazon doesn't have. Amazon sells unicorns and it's stock.
Sorry to be so straight up.
9:25 pm on June 21, 2017 (gmt 0)

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Amazon was losing billions for 10+ years. Never made money outside of last 2 years, and they are questionable.
Not sure where you're getting your numbers. Amazon didn't make a profit for its first 8 years (losing about $3 billion), then made over $3 billion in the next 7 years.

Ecommerce where you push prices down is a tough business with low margins.
Which is exactly why Amazon has been diversifying for years. AWS is a big (and growing chunk) of their profit.

I really don't specifically like Walmart and I would never EVER shop there.
Perhaps that's the reason you're not understanding the required inventory discussion between Walmart/Amazon. Walmart has 11,000+ retail stores, most of them with huge footprints requiring in-stock inventory for thousands of items (at each location).

Walmart is owned by Sam Walton's heirs who have combined, between each other , close to $140 BILLION cash
Their value may be close to that, but I doubt much of their value is in cash. And the amount of cash that private citizens have is of no relation to the amount of cash a corporation has. Unless you're talking about them making shareholder loans to the corporation, which then is little different from Amazon taking a loan from a bank or other investor.
6:00 pm on June 22, 2017 (gmt 0)

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>> @LifeInAsia, made over $3 billion in the next 7 years.

Math?
Let me do it one more time Walmart had almost double at 31B but paid out 18B to share holders - in ONE YEAR.
Amazon has nothing on Walmart profitability.

>> Which is exactly why Amazon has been diversifying for years. AWS is a big (and growing chunk) of their profit.

I know. Great. Except now that everyone is building cloud services, 10 companies or more have - Google Drive, Oracle, IBM, Akami, SAP, even Microsoft and Salesforse.com sells more cloud than Amazon. It is a very crowded, very competitive business. With many options and people now aware of all benefits, and FLAWS of the clouds. Especially their data insecurity. Do you think there are many more companies out there who want their data insecurely hang out there, "in the cloud"? Pipe dream. AWS is slowing down due to many factors. It is a SaaS service, and the barrier to entry isn't that high. The high growth right now is in 200 "unicorn" mobile startups. 100 or more of them will be out of business within 5 years as .COM 2.0 Crash is coming. With so many offerings , a price war is already on that will squeeze margins. Every single projection I am seeing is rosy and is overestimating use, just go back to what was projected in 2010-2014 and you'll see that we are only NOW reaching stuff that was projected in 2013 (in 2014 some people projected $150 Bln, we are barely clearing $120B now), and the curve is flattening.

Here's an example of over-promising BS (this is NASDAQ, by the way, 2017):
"The chart below illustrates that an organization may incur 30% in cost savings if it were to switch from an on-premise infrastructure (i.e. having physical servers, databases, etc…) over to a cloud framework ($630 per core per month to $440)"
[business.nasdaq.com...]

$630 per core per month? WHAT are they smoking? My dedicated servers are 12-core, $200/month for ALL.

>> Unless you're talking about them making shareholder loans to the corporation,

Of course. If I am the owner of company A, and I took billions from it, it is entirely possible I can give company A a credit of X Billion because I know it's been good for for it for decades. It is a lot different than for Amazon to go back, yet, to the bankers, that own Amazon outright. With Walmart cash is there, with Bankers you don't know who, or where it is coming from.

I am speculating that US is no longer controlling Amazon as at went to the bankers so many times. And bankers can be anywhere in the world - you know, London, Switzerland, China, Saudi Arabia.
2:18 pm on June 23, 2017 (gmt 0)

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Word from the street.

I just talked to my postal guy, who's pretty street smart.

His thinking is this.
With all the malls that are going to be vacant. Amazon will wait 5 years or so and then will go buy them for 3-5 cents on the dollar. Because nobody wants them. And make warehouses. And then they are going to make US Postal Service look like a very old , poorly operating .gov enterprise and they'll make an offer to US gov to privatize it. So in 5-10 years he may be working for Amazon.

This is clearly more viable than drones, although drones could be part of the operation too. Just not from your local Whole Foods, but from your local post office or formerly vacant mall.

Of course, by that time, who's going to buy the chinese trinkets. The word is out that 73% of all americans die in deep debt.

<< this , of course , is not in the news, the Kardashians and other anti-Trump distractions are.

Interesting times.
 

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