Where Is the Value in Amazon?

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July 25 (Bloomberg) –- RBC Capital Markets Managing Director Mark Mahaney discusses Amazon’s profit miss, Facebook’s earnings and Zillow’s bid for Trulia. He speaks on “Market Makers.” (Source: Bloomberg)

Saying investors are sick of it.

They're tired of waiting for him to make money.

They are still willing to give him 500 times earnings for the shares.

They cannot be that unhappy.

No, and the way you phrased it is right.

I do not think there is an investment surprise that bezos likes to make big bets and is willing to take multi-year risks in terms of new categories and markets.

That is not a terrible surprise.

The market has seen this before.

There is quick context here.

They went into a margin tailspin.

The creators went into the $25 range.

They came out of that cycle extremely well with a bunch of new products.

Investors remember that, though.

So, for you, when you look at amazon, where's the value?

Let's see.

If you divide the business into a couple of categories, there is a first-person retail business.

That is the walmart or web.

They have greater share on the web and walmart does.

There the third-party marketplace business.

That has about 40% of the overall sales.

That is a high cash returning business.

Then there is the speculative investments.

Amazon is not that speculative.

Low-margin with strong growth.

The truly speculative investments are in devices and video content and may be expansion into china.

Do you ever struggled to keep together the long-term strategy plan?

It seems that they have so many new products and acquisitions.

What does this company want to look like in five years?

Well, i don't necessarily struggle with what they want to become.

I think they want to be -- the everything store.

They want to be involved in all things retail.

I worry about the level of execution and risk.

Amazon -- a couple of the groceries, some of these carry very high execution risks.

This is what i worry about.

The overall vision -- there is no reason that they cannot have a lot of products.

Michael, one of your colleagues, asked the question?

What if they get to $200 billion in revenue and still do not have a profit?

They obviously lost a few million dollars.

What if that is the case?

Can you imagine a world in which 5, 10, 20 years from now, amazon is making $200 billion a quarter and still no profit?

Doesn't matter?

I think that would matter because it would be several more years of margins at super low levels.

I want to put something in context.

Amazon for eight years did 6% on operating margins.

That should not be surprising.

That is what traditional mass merchandise retailers operate at.

This is a retail business.

This is not facebook or google.

Be comfortable with the fact that it is a single-digit operating margins.

But we should see is a recovery in these margins from 2% today, back up to 3, 4, 5%. if we do not see that, there's something fundamentally wrong going on here.

They will not work for them.

International markets should cut their losses.

This is not facebook or google.

Who is feeling it in a big way?

Mark zuckerberg.

But do you make of the success they are having now?

He has more money than bezos, or larry or sergey.


That is great.

Now you can make rent.

[laughter] this is one of the most successful pivot i have seen in the last few years on the internet.

They had no mobile revenue to speak of and now it is 60% of total revenue.

They got the futures and functionality right, embedded ads.

That is a very impressive trick that they pulled off.

That was in a way that advertisers like.

So, right now, the business is clicking very well.

You still have two very large revenue streams ahead.

You have instagram and video ads.

We like the business and what it stands for.

We also like that we have revenue streams that will be robust.

Facebook's margins are insane.

Imagine if jeff bezos was looking at 58.6% operating margins.

Does this mean that facebook, with the 46 pe, does this mean that they do not have the growth story?

You cannot get 1.3 million people to look at your site every month, can you?

That can continue to grow.

There is a law of massive numbers at work here rid the monthly average inuser number is only growing.

It will continue to slide down.

At some point, investors will focus on that.

Given the earnings growth in the -- that camp, that is reasonable.

With amazon, they will have triple digits growth, like you would have with any company.

It makes getting the right pe much harder than it is for facebook.

Let's talk about truly a and -- trulia and zillow.

I use both all time time, but i never know which is which.

Is this a no-brainer?

Hold off on that a little bit.

We have identified this online real estate category as one with growth.

Trulia and zillow are two.

When we have done real estate agent surveys, both are perceived as relatively similar by agents in the field.

Consumers tend to go to zillow more than trulia.

They are perceived to be a similar.

It does not seem like any potential homeowners are going to individual websites, wheth er corcoran --help me out.

I can.

I go to trulia and zillow also.

If they do partner, is there any hope for these web operations for individual real estate companies?

I am sure there is.

It depends on the brand of the real estate broker and frankly of the agent.

This is truly local.

Location, location, location.

Those people do not need any -- the agents do not need to build a national or regional brands.

They can have highly focused brands in local area using tools.

Izillow and trulia offer some of those.

I think there are plenty of brand opportunities for individual real estate agents and brokerages.

I love it.

This text has been automatically generated. It may not be 100% accurate.


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