$AMZN PP&E
$AMZN is continuing to spend massive amounts of money on PP&E. In the short term, it lowers ROIC and earnings. Long term, it becomes a serious barrier to entry, especially because both their main businesses (cloud and e-commerce) are dominated by scale.

More specifically, below is where this investment is going. On the e-commerce side, no competitor can match this investment giving Amazon a huge competitive advantage in distribution. Competitors have to try and build an advantage elsewhere.

On the cloud side, $MSFT is able to compete. The cloud industry is so big that there should be room for both of them. Long term, I agree with Amazon's strategy.
Nathan Worden's avatar
That is a lot of spend, but like you said, it will really hard for other competitors to match that spend and scale. Microsoft can, but who else?
Young Money Capital's avatar
@nathanworden I don’t think anyone else can. Google has an outside shot but prob unlikely. While different industries, I see this similar to $TSM where at maturity they can have massive margins due to scale advantages.
Conor Mac's avatar
I don’t follow Amazon all too well, what is the majority of their CapEx used for? Distribution?
Young Money Capital's avatar
@investmenttalk 30% for distribution. 40% for technology infrastructure (which includes both cloud and e-commerce) and 25% for transportation.
Joshua Simka's avatar
@investmenttalk I think distribution refers to the fulfillment center infrastructure and staffing while transportation is trucks and people actually moving the goods and the "last mile" piece of it all.
Ben's avatar
I never understood why not having free cash flow is seen as a strength for AMZN. Having high capex is seen as a negative in the oil and gas industry
Conor Mac's avatar
@rpinvestments the idea is that they are using any FCF they might have saved to earn superior ROI on capital.

Take a young restaurant business as an example. Lets say it has 50 stores and wants to grow by another ~8 stores annually.

Negative FCF in most cases is not a problem, because they are using CapEx to build out stores, eventually earning economies of scale, which can push up margins, cement their competitive position, etc. Spend money to make money.

If they didn’t reinvest FCF, you’d question why.
Young Money Capital's avatar
@rpinvestments Oil and Gas is a commodity and impossible to build a competitive advantage. $AMZN giant capex makes it impossible to compete with them on distribution. The bull thesis is that they will be able to back this off eventually and FCF margins should expand.
The Thinking Investor's avatar
Does $AMZN disclose what percentage of PP&E is spent on cloud vs distribution?
Young Money Capital's avatar
@thethinkinginvestor They gave some insights.

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