How do you figure that the margin difference is "already discounted
in the price times sales"? To start out, neither of these companies
is valued on price to sales ratios. These stocks are valued almost
entirely on speculation of what they might achieve in five or
six years. It is ridiculous to say that they are valued on price to
sales when they have so little sales. Considering the profitability
of those sales, it is even more ridiculous to say that Amazon.com's
stock is based on their price to sales.
Are you saying that sales of less than $250 million at 22% gross
margin is justification for a market valuation of over $5 billion?
If so, what are you using to justify this? Is if comparative
valuations? Is it forecasting spreadsheets that model the business?
Is it analysts projections?
Take a look at the "numbers" from Amazon's most recent 10Q;
------------
RESULTS OF OPERATIONS
Quarter Ended March 31,
-----------------------
1998 1997 % Change
------- ------- --------
(in thousands)
Net sales.............................. $87,375 $16,005 446%
Gross Profit
(in thousands)
Gross profit............................ $19,321 $ 3,521 449%
Gross margin............................ 22.1% 22.0%
Marketing and Sales
(in thousands)
Marketing and sales..................... $19,503 $ 3,906 399%
Percentage of net sales................. 22.3% 24.4%
Product Development
(in thousands)
Product development..................... $ 6,729 $ 1,575 327%
Percentage of net sales................. 7.7% 9.8%
General and Administrative
General and administrative............. $ 1,963 $ 1,142 72%
Percentage of net sales................ 2.2% 7.1%
-------------
Amazon had gross sales of $87 million, gross margin of 22%, Marketing
expense of 22%, development costs of 8% and G & A costs of 2%. That
nets a loss of 10.1% of sales. It doesn't take into account further
expense and dilution caused by the company's Senior debt need to
secure additional capital to fund broader distribution goals. Or how
do you propose that the company will grow? They are losing money and
must get more "free money" from investors pockets in ordr to fund the
mounting losses they are incurring.
Amazon has a Senior note valued at $530 million at maturity, more
than twice the annual sales of the company that must be retired or
converted. Amazon.com will need to grow sales to much more than
$2.46 billion at 22% margin just to service this debt. (calculated as
the amount of annual sales at 22% margin, exclusive of any other
costs of doing business). Interest of 10% starts accruing in 2003.
Large dilution due to employee and management stock options will have
a further effect in nullifying profits and sales figures.
------------
Excuse me John, but I have a very difficult time understanding your
thinking that sales, or any other fundamental factor for that matter,
can be used to justify the stock price. Further, when you look at
the supposed glorious and, so far, fictitious returns this company is
expected to generate, you will see that they have already been
maneuvered into the hands of the venture capitalists and investment
bankers - the same group where Bozo has his roots. Investors will be
left holding only the dream and their disapearing balance on
investment statements.
Please enlighten us as to why my assessment does not make sense. |
