Mine happen to be backed up by the company (who states they will be cash flow positive by end of this year), and also major analysts who have spent more time on this than myself.
Brian - welcome to the AMZN thread - I have not seen you post here before (but I've only been posting sporadically here myself lately). You've wandered into a bit of a minefield in making some rather strong predictions that Amazon will not run out of cash. And while this is the AMZN thread, many who post here don't seem to have a very positive view of Amazon - the company or the stock.
Amazon officials have made public statements that claims that the company will run out of cash are nothing but "hogwash" (the exact word spoken by Amazon spokesperson Bill Curry). But if you read Amazon's latest 10Q report, it is full of warnings that the company may run out of cash (http://www.freeedgar.com/Search/ViewFilings.asp?CIK=1018724&Directory=891020&Year=00&SECIndex=1049&Extension=.tst&PathFlag=0&TextFileSize=128632&SFType=&SDFiled=&DateFiled=5/15/2000&SourcePage=FilingsResults&UseFrame=1&OEMSource=&FormType=10-Q&CompanyName=AMAZON+COM+INC). Why aren't Amazon officials publicly stating what is in their own 10Q report - that there are risks of their running out of cash? In response to the recent Lehman bond analyst report, why didn't Jeff Bezos say something like "You know, that bond analyst has a good point - there is a risk that Amazon may have a cash problem in the future - we state this very clearly in our 10Q report - but, in truth, we believe in our business model and we're working hard in the interest of our shareholders to make sure that we don't have a cash problem in the future." However, Bezos didn't say this - instead, he and other Amazon officials opt to use inflammatory language, claiming the Lehman analyst's opinion is "hogwash". But in truth, the Lehman analyst was really only restating what was already in Amazon's 10Q report.
Regarding major analysts (Henry Blodgett, Mary Meeker, et al) that have positive opinions on Amazon's outlook - well, I think that many on this thread view the opinions of such analysts with a bit of - what shall I say - a bit of suspiscion? Some of these analysts have pumped many an internet stock in the past - stocks that have lost 60%, 70%, 80% and even more in value this year (I have to be careful here, I don't want to open myself up to the possibility of being sued). And doesn't it seem a bit odd that many of these analysts are able to achieve and maintain respect for their opinions within the investment community - despite the fact that these analysts are employed by companies that hold large equity positions and have underwriting agreements with the companies for which the analysts are releasing opinions? I have no proof that any analyst has every purposely pumped a stocked for the benefit of his/her company or his/her company's investors. The investment banks will tell you there is a Chinese wall that separates the analysts from the rest of the firm. But on the surface, doesn't there seem that there is room here for a major conflict of interest? I would like to believe that the people who work for the investment banks are good, hardworking and honest people who are always thinking and acting in the best interest of their individual investor customers. But, I for one, would feel a lot more comfortable with the opinions of equity analysts if such analysts were a bit more independent. I realize that my writing at times reeks of idealism (and cynicism). But there are some analysts - employed by some very well-respected investment banks - well, some of these analysts I wouldn't trust to invest my pocket change (much less, my life savings).
In short, no one knows whether Amazon will run out of cash. Even if the company does run into a cash crunch, Amazon may still be able to raise more money through the bond and equity markets (provided that such markets remain open to them). Looking at Amazon's income and cash flow statements from the company's recent 10Q and 10K reports, however, there's one thing that stands out: Amazon is not using that much cash in building out it's distribution centers these days - it appears that the cash required to outfit many of these centers (at least in the US) has already been spent. Where Amazon is loosing cash, however, is in operations. Looking at Amazon's sales and cost of sales, one would come to the conclusion that Amazon is operating in a very low margin business. The conclusion gains greater support when you consider that Amazon accounts for fulfillment costs (shipping) under "Marketing, Sales and Fulfillment". But of course, it is common knowledge that retail is a low margin business. Since Amazon is operating in a historically low margin environment, the only way Amazon will reduce it's operating losses is to drive more sales - which might require it to spend more money on marketing and advertising.
I think Amazon has a chance of surviving. But I can see nothing in any of Amazon's reports nor in any of the opinions released by investment banking analysts that convince me that Amazon will be the next Wal*Mart. Amazon has benefited tremendously from very friendly bond and equity markets - the cash cushion that such markets has provided has allowed the company to survive and grow it's sales. But in my view, the company has yet to prove that it's model works. And it seems that there are a lot of people, especially a lot of analysts, who make very bold statements that "Amazon's model does work" and that the company will survive. But in truth, it's a big unknown. I would have much more faith in Mr. Bezos if he would publicly acknowledge the risks he is taking with investor's money, rather than downplaying the very real concerns expressed by a Lehman bond analyst (concerns which are echoed throughout Amazon's 10Q report) as "hogwash".
Thanks,
-Eric |
