Steve:
Well, on Amazon's conference call the CFO said they had a positive cash flow since inception (I presume she meant from operations). Because they get paid within 30 days by the credit card companies and don't pay their suppliers for 60 days or whatever Amazon, has, supposedly a net 30-33 days to keep the customers cash. So, in this sense if they can build sales more quickly than they can spend the money, they do throw off cash. It is a Ponzi scheme, in a way, of course, because if they suddenly stopped they would have to pay all of their creditors and out would go a huge amount of cash. BUT ... Amazon looks much better from a cash flow perspective than from an earnings perspective.
Most growth companies must invest in bricks and mortar to grow, so their capital needs exceed their cash flow generation while they are growing quickly. Most retailers and manufacturers hold product inventory long enough to, on average, have to pay for it before they sell it. Amazon and Dell have a different (better) model, in that they do not need as much capital to expand plus they don't invest in as much inventory. Since Amazon has just borrowed $1.25 billion and talked about growing their distribution network, it is possible that their model is deteriorating somewhat and they will rely more on bricks and mortar and inventory. |
