Amzn keeps growing their revenue @ the expense of
all of their competitors. Although, they still don't make a profit, Wall Street keeps
rewarding them for revenue and market share gain, and B&N, Borders etc go bust in,
say 2001.
Is their cash flow gains, enough to keep Wall Streets appetite up?
This is the part of the equation, I can't figure out, because they didn't teach us that @ my
grad school.
H,
Last night I finally determined Bezos' business model and understand the goal. I do not understand the means.
The goal of AMZN is strictly brand recognition. It matter not in what product such as books, music, video, etc. They want everyone on the internet to know the name of Amazon and equate that with quality, service, price and loyalty.That assumption made by management and sold to some analysts is that once this brand recognition and loyalty are established, Amazon need no longer spend the huge sums of money to attract new customers. They will get new customers via word of mouth and have so many page views that they will receive revenues from advertisers on their site. This brand recognition comes at all costs. There is no stated or calculated time frame to be in this position. It could take two more years or ten more years, etc. Profits take a back seat while building this name. The bulls will say this will occur and state that the inventory turn of a multiple of 7 times or more per year of all products will be very profitable even with low gross margins. They anticipate the cost of doing business to fall since large scale advertising will no longer be necessary and there will be revenue from other advertisers. Much like a net portal. This is how they connect AMZN with the likes of YHOO, SEEK, AOL, etc.
My opinion on this business model:
1. The yearly gross sales necessary to make this profitable has never been established. There is no profitability time frame goal.
2. Brand recognition is a great asset in the retail world but large scale advertising is necessary to maintain it. It will not remain due to word of mouth. Recall Kleenex tissues. Many people buy a variety of tissues and call them kleenex but in reality buy another brand. It is a commodity.
3. There is no loyalty from the retail customer. Price and service will win every time time hands down and both are easy with which to compete.
4. The internet as a marketing mediums is more efficient than the brick and mortar everyone complains about. Companies pay huge premiums to be in the busiest retail areas in conventional retail. The assumption is the traffic of shoppers in the area will cause extra business and that will offset the cost of paying more being in the prime real estate area. Conventional marketing has proven this to be true. People do not like to fight traffic to compare stores in other geographic locations nor spend the time. They will not worry about a prices difference of 5-10 percent because of the inconvenience of driving from place to place. On the net, comparing is a mouse click or two away. Connections to the net will increase in speed and site loads will take seconds not minutes. There is no prime real estate on the net. No brand loyalty. Price and service will win always.
5. The cost of servicing debt has never been addressed in this very unusual business model. Debt will become very high and the purchase of brand recognition will dissipate far faster than it can be bought.
6. Traditional retailing will continue to exist even though there will be more commerce on the net. Barnes & Nobles along with Border and others will still have stores in prime retail locations where thousands of people go by daily and thousands shop daily. Every view of the store alone is a "page view." With hundreds and sometimes thousands of stores the total page views will be extensive. Driving by is one page view or walking by. Is going in and browsing worth twenty page views, 100, 1000? Depends on how many books one picks up and peruse. It also depends on the politeness of the selling staff and the atmosphere.
7. The equity market is financing AMZN with the belief that this brand recognition can be established. AMZN has proved this in the past with a huge percentage gain in gross revenues. The percentage gains has to slow. AMZN must do the $87 million and then another 30-40% this quarter to dazzle the street. Let's assume they must do $130 Million this quarter. If they succeed, then they must do $175 Million the following quarter. These increases all have to come in the face of stiffer competition on the net with BKS and BGP not to mention Bartlemans (sp). BKS and BGP compliment each other by brand recognition being both on the net and in brick and mortar stores.
8. One quarter from AMZN without a sequential 30% increase in revenues will make the stock drop like a rock.
It is my opinion that management of this company is well aware this is never going to work. Management is making every effort to keep pertinent information quiet now. Management is well aware the balance sheet looks terrible and will not improve.Management is looking to sell their shares in small groups so they may retire wealthy while the small investor is left holding the bag. This is my opinion and how I perceive a company without a real marketing model and no time frame for profitability. They did not have a good enough business model to convince conventional banks to lend them more than $75 million. That was less than one quarter's revenue.
I am short AMZN. Will continue to be short and plan on riding this puppy into bankruptcy. It has been said that AMZN will find a nitch and continue to survive at worst by some. The amassed debt will not permit financial survival even if a marketing nitch is found.
I hope I did not bore anyone to death<G>
Glenn |
