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As most people know Amazon.com operates online sites that sells a wide range of products and services. Products offered on its customer-facing websites include merchandise and content purchased for resale from vendors and products offered by third party sellers. On a services front, company offers Amazon Web Services, co-branded credit cards, fulfillment, and online advertising.

Financial Strength

Revenues - Amazon reported 2Q (2014) revenue of $19.3bn (+23.2% y/y vs. +22.8% in 1Q), in line with consensus

US business revenue growth stabilized in 2Q at 26% y/y, flat over the past two quarters

Media revenues slightly accelerated to 13% y/y growth vs. 12% last quarter o EGM (Electronics and General Merchandise) revenues also accelerated inthe quarter growing at 29% y/y compared to 28% last quarter

Other business lines (mostly AWS- Amazon web services) experienced a slowdown in the quarter, growing at 38% y/y vs. 61% last quarter

International revenue grew 18% y/y, same as last quarter, representing 38% of total revenue compared to 40% last quarter

Media category revenue growth stabilized at 4% y/y FX-neutral

EGM growth experienced deceleration, growing at 20% y/y FX neutral compared to 26% last quarter

International other revenue declining 1% y/y FX-neutral from 11% last quarter. The impact is small given the size of the business (less than 1% of international revenue)

Operating income - Adjusted operating income margin was 2.1%, slightly ahead of consensus

US business operating margin declined to 3.7% compared to 4.7% last quarter, mainly due to the price cut in AWS

International business operating margin remained negative due to continued investments

Capex - Incurred $1.3bn capex in 2Q14, up 51% y/y and representing 6.7% of total revenues which is the highest ever seen and it’s total capex is expected to reach close to $5bn in 2014

Balance sheet and liquidity - During 2Q14, Amazon recorded $0.9bn operating cash inflow and there was no share repurchase in the quarter. Account payables picked up $0.3bn and the net cash balance came down to $4.9bn from $5.5bn last quarter

Guidance - Amazon guided 3Q14 mid-point net revenue at $20.6bn, slightly shorter than $20.8bn of consensus owing to investment in fulfillment infrastructure and $100mn in incremental spending on original content for Prime Instant Video

Economic Moat

Prime is one of the most valuable and important growth trend for Amazon, representing around 50% of company GMV (Gross Merchandise Volume) today. At an estimated 32mn customers (13% of total, growing at around 45% Y/Y) and high GMV but low contribution margin, the mix shift to Prime is critical to the Amazon’s success. Prime’s value to Amazon holds key as-

It creates a competitive moat around AMZN’s e-commerce business

Drives up loyalty and

Increases wallet share and captures higher customer LTV (lifetime-value)

At current pace, Prime could reach 100m customers by 2020, and even at 70% of the LTV capture it would amount to $70bn in value (nearly half of AMZN’s market cap today)

Worldwide active customer accounts increased to over 250mn in 2Q from 244mn in 1Q and growth in ARPU (Average revenue per user) after excluding other revenues from NA region accelerated to 5% y/y vs. 3% last quarter

Few Risks

Taxation-related risks - Sellers on Amazon’s Marketplace may be subject to sales tax or required to submit tax-related reporting, which could negatively impact the business

Expansion-related risks - Amazon is rapidly expanding into the global market in terms of product sourcing and infrastructure capacity. This expansion increases the complexity of the business and may place a strain on the efficiency of its operations

Investment Rationale

Amazon it is in the process of diversifying its revenue base from mostly transactions (products) to subscriptions (services) that are more recurring and predictable. It is making necessary investments in content, device and ecosystem to ramp up, but this will take time and hence over the longer term, it will remain and become a stronger and prominent e-commerce player. Amazon’s strong investment’s plans ($2bn) in the currently miniscule, severely under-penetrated and less competitive Indian e-commerce market holds immense potential over long-term.

With Apple’s recent acquisition of Beats for approximately $3 billion they continue to show their strength in the technology market and have continually proven themselves as an innovator in the hardware and software space. But what makes Apple such a great company that their stakeholders can be proud of?

For starters, the company has grown its revenue per share for more than 10 years. Very few large-cap companies can say that. But few firms have disrupted the world as Apple has, with its iPhone, iPad and iTunes/iPod.

The stock has returned 17% this year only, and this is already adjusted for the 7-for-1 split that was experienced earlier this year. This split has made Apple’s stock more appealing for the retail investors and those looking to get more bang for their buck. Based on a quarterly payout of 47 cents, the stock has a dividend yield of 2.02%, which is quite something for a tech stock with Apple’s growth record.

The Earnings-Per-Share (EPS) growth has been supported by massive buybacks of common shares, which lowered the average share count by 7% over the year ended March 29. In April, Apple expanded its buyback authorization to $90 billion by the end of next year, from the previous authorization of $60 billion.

Typical tech investors don’t want to hear about buybacks or dividends, with the conventional wisdom being that a fast-growing company should focus on plowing its cash flow back into research and development, in order to make sure the company keeps putting out innovative products.

But Apple’s cash flow and cash buildup have shown the flaws in that argument.

Social media stocks continue to soar as both Facebook (FB) and Twitter (TWTR) revenues rise this summer

Twitter’s stock was the hot topic this week in the investment world. The world’s second largest social media company has reached a new peak in its stock price.

Twitter shares rose by as much as 30 per cent last Tuesday after the company posted their quarterly earnings. The numbers showed the company keeps adding new users (up to 271 million at last count) and better still, is squeezing more and more money out of advertisers for all those timeline views. This has led to the company doubling their revenue, which took in $312 million in the three months up to the end of June. That’s an increase of 124% over the same period a year ago.

Twitter still lost $142 million in the quarter, more than three times as much as the same period a year ago. But investors seemed to focus on the positive this week, driving Twitter shares up to their best day since the company had its IPO last year.

A similar reaction from investors was seen last month with the shares of Facebook (FB) going up to a new high of $73.22 per share and Facebook continues to lead the social media industry with 1.32 billion total users.

Vuru helps you pick high quality, undervalued stocks. Vuru is not like other financial sites. Vuru is focused. It’s founded on the idea that value investing is the best approach for individual investors and is the only way for individuals to effectively compete with Wall Street.