Displaying items by tag: scale

(Seattle)

Amazon has seen some significant volatility lately. A weak earnings report sent the stock plummeting, and weaker top line growth is making some worry. The stock is down 17% since the beginning of October. However, the company’s bottom line seems likely to grow strongly as it starts to benefit from its massive scale. A Nomura analyst summarized the situation best (and interestingly), saying “AMZN’s size and scale are eclipsing its ability to suppress margins … Put simply, it seems AMZN sales and GP [gross profit] dollars are growing faster than their ability to spend”.

FINSUM: We don’t think Amazon is in trouble by any means. The company is just transitioning into a more mature state where topline growth will slow, but margins will rise.

(New York)

As fees fall, there is an inevitable reality in the US asset management industry—scale is everything. Investors need to deeply understand this concern if they have money in the sector. For instance, analysts and the market are putting so much preference on large managers, that one analyst just upgraded BlackRock to outperform, while downgrading Invesco and WisdomTree, even though BlackRock’s P/E ratio is 18.6, and the latter two’s are an average of just over 10. BlackRock’s stock is down 15% in the last year, while Invesco and WisdomTree have both fallen more than 30%.

FINSUM: The more fees need to be cut because of competition, the more money one needs under management to maintain profitability. Hence the battle for scale.