advalorem:
It's interesting that Bill Curry, Amazon spokesman, should
refer to recent analyst concerns over the Amazon's ability
to generate cash as "pure, unadulterated, hogwash". Yet,
Amazon's most recent 10Q report (May 15, 2000) states the following:
freeedgar.com
======================================
WE HAVE AN ACCUMULATED DEFICIT AND ANTICIPATE FURTHER LOSSES
We have incurred significant losses since we began doing business. As of
March 31, 2000, we had an accumulated deficit of $1.19 billion. We anticipate at
June 30, 2000 that total shareholders' equity will be a deficit. While we expect
to generate income on a pro forma operating basis in our US Books, Music and
DVD/video segment for the full year in 2000, we are incurring substantial
operating losses and will continue to incur such losses for the foreseeable
future. These losses may be significantly higher than our current losses. To
succeed, we must invest heavily in marketing and promotion and in developing our
product offerings and technology and operating infrastructure. In today's tight
labor market we could be forced to increase our cash compensation to employees
which could hurt our operating results. In addition, the expenses associated
with our recent and future acquisitions and investments and interest expense
related to our outstanding debt securities will adversely affect our operating
results. Our aggressive pricing programs have resulted in relatively low gross
margins. Our historical revenue growth rates are not sustainable and our
percentage growth rate will decrease in the future.
======================================
So, you have to wonder - which is correct? Bill Curry's
statement or the company's 10Q?
Let's assume for a moment that AMZN does go to zero
and that the company does declare bankruptcy. Think
about the questionable business and financing
practices that pundits and analysts will point to as
resulting in the company's demise - I believe such
practices would include:
1. A bet-the-bank attitude on the part of management.
Bezos' repeated statements that "profits aren't important"
will be recognized as the mantra of the failed etailing age.
2. Overly optimistic revenue/profit projections by analysts
and Amazon management. You may recall that before Amazon's
grand warehouse expansion plans, the company was to be
profitable by 1999.
3. Is it possible that Amazon has a flawed strategy
of trying to sell in too many product categories?
Bricks & Mortar department stores work because consumers can
go to one store to purchase items from different categories.
However, this benefit doesn't necessarily translate to
the internet - I can just as easily buy patio furniture
from Amazon as from patiofurniture.com. But in reality,
I'm probably going to want to see and experience my patio
furniture before I buy it, so I'm more likely to buy it from
the local bricks & mortar store.
4. Too great a reliance on payments from Amazon Commerce
Network partners. Some (myself included) view the
ACN payments as just a creative form of financing on the
part of Kliener Perkins. Think about it - all the ACN
companies are funded by KP - as is Amazon. Amazon needs
revenue and cash - so all these companies pitch in by
transferring some of the financing they've received over
to Amazon - in the form of ACN payments which show up
on Amazon's income statement as revenue (which comes at
no cost). Instant cash - and instant revenue to help
boost the company's outlook. Now it appears that this
is all legal, but I certainly wouldn't question anyone
that would refer to such practices as a "scam".
5. Massive insider selling as company losses grow.
6. Questionable offshore convertible bond financing.
7. Accounting of fulfillment costs under marketing expense
in order to boost operating income.
8. Questionable purchase of other internet firms - why,
exactly, did Amazon purchase PlanetAll and Junglee? What's
happened to these firms?
9. Questionable use of investors' money. Does Amazon really
have the expertise to be both a top notch internet marketing
machine as well as a leader in distribution? Was it a good
use of money to invest in warehouses - or perhaps, should
Amazon have looked to another company with more expertise
to do this work (Fingerhut?)? Wasn't Amazon's investment
in warehouses in stark contrast to their original
business model - one that would allow them to
achieve profits through not having to carry large
amounts of inventory.
10. Isn't Amazon just another low margin retailer, but with
an internet presence only. In fact, isn't Amazon just an
electronic mail order firm?
11. Could it be that for a retailer to be really successful,
that both an internet and bricks-and-mortar presence are
required? Have consumers really reduced the amount of time
they have spent shopping in stores?
12. Hasn't Amazon and other etailers unfairly benefitted
from not having to charge sales tax as their bricks and
mortar competitors must do? Won't the introduction of
sales tax (when it happens) put intense price pressure on
Amazon and other etailers?
13. Doesn't the internet really introduce an environment
that is extremely price competitive - making it difficult
for any etailer to raise prices (once one etailer raises
prices, other etailers will market their price advantage).
If Amazon raises the price of a book by $1, I can easily
buy the same book from barnesandnoble.com for $1 less - and
I will.
There are many things that Amazon has done and continues
to do that are questionable. Whether taken together
these amount to a "scam" is a matter for debate. I do
believe, though, that it is safe to say that Amazon
management and several analysts form "well-respected"
Wall Street firms have shown themselves as being way too
optimistic on the company's prospects (not to mention
the revenue and profit generating prospects of the
internet in general). Of course, many will claim that the
jury is still out - that Amazon will become a very
profitable enterprise at some point. Going back to 1998
and early 1999, I don't recall any analyst from any of the
big investment banking firms predicting a massive wash out
of internet firms - the kind we are seeing today. And I
don't recall any analyst setting an Amazon price target
of $33. Did the analysts know the truth - that the
future would, perhaps, not be as rosy as they were
painting it to be? Perhaps, we will know as events
unfold. But it appears that many people on this thread
knew the truth - as early as two years ago.
Thanks,
-Eric |
