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Technology Stocks : Amazon.com, Inc. (AMZN)
AMZN 248.41+1.6%Nov 10 3:59 PM EST
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To: saber hormi who wrote (2012)3/6/1998 6:42:00 PM
From: Tom D  Read Replies (1) of 164684
 
Its the business model....

I recommend that at least one of you shorts get a hold of the Deutsche Morgan Grenfel analyst report on AMZN sometime. It has some surprises which I have not seen discussed on this thread. In particular, as you know, BKS and Borders use off-balance sheet financing for the leases on their stores. Several accounting books say this is not a recommended practice. If one includes the costs of the leases in calculations, then the weighted average cost of capital (WACC) exceeds the return on invested capital (ROIC) for BKS and Borders. This is an analysis which Warren Buffet popularized. When WACC exceeds ROIC, the company is destroying value. If sustained, the company will run out of value and go bankrupt. For AMZN the ROIC is much greater than WACC (of course).

Secondly, in their present fragile condition, the land-based book sellers have been abusing the generous return policies which publishers have ceded to them by tradition. If AMZN succeeds in changing these policies, it will be a substantial threat to the land-based sellers.

IMHO, the biggest threats to AMZN are Bertelsmann and maybe Microsoft, although the latter has still not demonstrated any interest in on-line bookselling.

Best Regards to all,
Tom D
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