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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 220.66

+1.6%

Nov 21 9:30 AM EST

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To: H James Morris who wrote (117982)	2/17/2001 1:29:16 AM
From: Glenn D. Rudolph	Read Replies (1) of 164684

>Let's try to real FA and not just post current financial results or stock movements. Glenn, what's your point? Is it one should only avoid Amazon.com? James, That is not my point although I would avoid it. My point is many businesses (a small percentage of the total however)are developing needed infrastructure that will be a necessity when broadband finally rolls out to the masses. I can't really say when that roll out will occur because I do not have a clue. I believe it is important to look at cash flow from operations and its use to buy and develop long term infratructure. This cash flow also must be taken in the text of gross margin. That is the number amazon does not want us to look at. Amazon wants us to look at total gross profit which is meaningless if it cost $1 to create that 90 cents of margin. An example here is Akamai is using load balancing via their proprietary software to speed of the endge of the network. The advantage here is peering really does not work as well as claimed by the backbone carriers. Let's say you read The Wall Steet Journal On-line. Let's also say that the servers for this news source is on Sprint. I really do not know what backbone they are on. Now lets also say your ISP uses WCOM as thir backbone. The transfer of traffic at the network access points such as MAE East is not providing pure peering. You will not receive the data from the WSJ servers on Sprint as quickly compared to those accessing through Sprint. Akamai is placing distributive servers on all the major ISP backbones. This is not caching. These servers are updated via a proprietary software as the news and the demand for certain stories change. This is nice in helping you receive a quick page load of a story but the fundamentals of Akamai would be terrible if they were getting a fixed fee from from Dow Jones. They are not. They are charging a metered fee per megabyte they serve and at decent margins. The current losses are not due to a lack of business or margins but due to an agressive build out of servers on virtually all ISPs everywhere. For past the past year Akamai was placing on-line 150 servers per week. Now that number is down to 100 per week and expected to fall to about 50 I believe per week during the later part of 2001. Their gross margins are the same so as more people have broadband access, there will be more megabytes handled by these servers and a larger bill to be paid by Dow Jones. This is not to say that some technology might come along and make this all worthless. That could occur but I really doubt it. My real point is not the fine tuning of the Akamai network but the fundamentals of the large picture assuming Akamai can maintain the same gross margins when far more data is required to be accessed when far more people have broadband. I am not of the belief the opportunities are unlimited. I am of the belief that Akamai has the pricing power to maintain the gross margins and gross revenue would then increase as broadband increases. Also, there will be a slowdown in the capital expenses to provide additional servers since there will soon be enough. My mind sees a plan here that can turn a decent profit with a decent ROI. There was never such a plan with Amazon. I believe it is important in all these specualtive plays to: 1. Analyze the gross margins. Are they sustainable and sufficent to cover all expenses and leave a tidy sum left over? 2. Will the revenues grow without dropping the gross margins to get them to grow? 3. How quickly will the need for large capital expenditures decrease and is there a huge ongoing expense for the firm to maintain what they have in place? 4. What amount of debt will be incurred to get to the point of having adquate capacity? This to me is good FA. A negative answer to any of the above questions already places the business model on death row and it is time to move on. This should have been seen with Amazon by the masses years ago. Amazon had a negative for question one from its inception. Question two was debated by many but it became irrelevant as to who was correct since Amazon could not pass the criteria of question one. Three was truly a know negative and one should have left Amazon behind based on that also. I believe four needs no further explanation. This type of analysis may be applied to a variety of current concepts in the works and more than 99% end up with at least one having a negative answer. I hope I was a little clear on this<VVBG>

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