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Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (111533)	11/1/2000 1:22:13 AM
From: brian z	Respond to of 164684

From stockhouse.com Amazon's Reported Cash Flow Misleading As the sustainability of many Internet models continues to be called into question, already battered online retailers could suffer further in the carnage. Included in this group is Amazon.com (NASDAQ: AMZN). This week and last, the financial media has been full of stories of the company's precarious cash position, a situation StockHouse first reported on in mid-August. Now, it appears that Amazon.com may have manipulated accounting principles to suit its financial objectives--a classic case of window dressing. Further, the SEC has launched an informal inquiry. Debt specialist Ravi Suria of Lehman Brothers (NYSE: LEH) recommends investors stay away from Amazon's convertible bonds. They would be wise to avoid shares of the retail giant as well, at least until the holiday season--and year-end results--show just how desperate the company's situation may be. Amazon closed Tuesday at $36.63. Amazon is a global online retailer of CDs, DVDs, books and a host of other goods. The company projects revenue will surpass $4 billion in 2001. Third-quarter sales grew 10.4% to $638 million, while costs grew by only 6.5% to $471 million, marking the third successive quarter where sales growth exceeded costs. Gross margins of 26.2% were the best in three years. Despite these improvements, not everyone is convinced that Amazon can sustain itself. Amazon has indicated to the investment community that it expects to have $700 million in cash flow available for the first quarter of 2001. That number is not likely to be reached. Amazon's true cash picture can be determined by looking at cash less payables at the end of the fourth quarter. It is important to note that Amazon's accounts payable must be paid in the next three to six weeks. In the retailing space, it is standard practice for all retailers to close their books in early January, with big accounts cleared by year-end. If the company ends the year with $1 billion in cash and $650 million in accounts payable, as projected, then its "real" cash available figure is a mere $350 million. And for retailers, when there is less cash in the till than is shown on the balance sheet, suppliers may demand payment. A supplier squeeze is likely if Amazon's cash balance slides below the $400 million territory, says Lehman's Suria. A supplier squeeze would hurt the company's cash position, and potentially create a sell-off in Amazon shares. In addition, a close analysis of the footnotes to Amazon's cash flow statements shows that it may have unreasonably manipulated generally accepted accounting principles. Amazon has previously included equity securities as part of its cash/marketable securities account. It treated shares in Webvan (NASDAQ: WBVN), down 56% from its adjusted cost base, and Sotheby's (NYSE: BID), up 5%, as stock "available for sale." This indicates Amazon's willingness to sell the stocks, but such holdings are a far cry from being liquid. Market perturbations could mean a blow of $40 million to $50 million to cash flow. In effect, portraying a substantial amount of stock as "reported cash" could distort the true operating cash flow picture. The SEC is examining Amazon's practice of doing this. Amazon's debt, too, remains troubling. Its $2.2 billion in outstanding convertible debt, or debt that can be exchanged for Amazon common shares, is rated CCC+ by S&P--a rating considered below junk bond status. Amazon's interest payments alone amount to nearly $128 million a year, which is awfully high for a company that bleeds through close to $700 million a year. Two recent articles in Barron's highlighted the confusion regarding Amazon's cash flow, and the dialogue with the SEC raises further questions about the company. There is no doubt that Amazon has made substantial gains in its performance. But its balance sheet fails to tell the real story. The company's true credit picture will come up over the holiday season. By the first half of 2001, shareholders and suppliers should have a clearer idea of where Amazon really stands.