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

To: Randy Ellingson who wrote (115547)	1/17/2001 11:07:05 PM
From: craig crawford	Respond to of 164684

>> I think I see your point, though if Buffet had invested in big tech (IBM, MSFT, INTC) 15 years ago, he would have been quite happy with the results. << But those companies don't have practically any earnings! There's a dirty little secret on Wall St. and it's called option compensation. Factor in options as an expense and a lot of high tech companies don't truly have squat for earnings. They have some earnings, but not nearly enough to justify their outrageous valuations. Buffett aint stupid, he knows this. That's why he invests in non-tech companies because they don't rely so heavily on ESOP's. They actually pay their workers with greenbacks. Tech companies in this bull market use every trick in the book to hoodwink the public into thinking they are great cash generating machines. Well most of the cash they generate is from writing puts on their own stock, making equity investments in other tech companies, jiggering the books so they don't have to use cash to pay their employees, and fudging the books when they make acquisitions. Just look at the balance sheets of some of the large tech companies. They are tiny fractions of the market caps. There isn't much tangible value there. Look at AMCC's "earnings" that everyone raved about so much! Pro forma net income excludes acquired in-process R&D charges, the amortization of purchased intangibles, payroll and other tax effects on certain stock option exercises, and stock compensation charges related to acquired companies. Including these charges, the net loss on a GAAP basis for the third quarter of fiscal 2001 was $269.5 million or $0.95 per share, compared with net income of $12.1 million or $0.05 per share for the same period last fiscal year. For the nine months ended December 31, 2000, the GAAP basis net loss was $242.5 million or $0.94 per share compared to net income of $28.0 million or $0.12 per share for the same period last fiscal year. This is why Buffett doesn't invest in tech companies. Not because he is too old or stupid to take the time to figure them out. He knows them better than everyone on this thread! He knows the earnings aren't really there! When the Nasdaq is a fraction of the level it is today and history looks back on this mania for answers as to why it got so out of control, it will all come down to accounting gimmicks and employee stock options as payment in lieu of cash As HJ would say, trust me on that. You see, employees have to exercise those options eventually otherwise they really aren't getting paid what they thought they were. And of course they have been financing their BMW's and boats and fancy lifestyles believing that they were rich because they have a cushy job at INTC and they've been granted thousands of stock options, that are "in the money". When you have a precipitous and extended decline like we've had in the Nasdaq, companies either have to reset option strikes lower to keep employees happy or pay them in cash. You have employees who were content to let their stock options sit unexercised as long as the market continued to climb. When they see the market not coming back and they see hard times coming down the pike they get scared and exercise what they do have and sell. This just dumps more supply onto an already weak market. Others will refuse to exercise because they see their company's stock so "low" and think what is the point in cashing it in now, I better hold on and wait for better times. When the better times and stock prices don't show up they will get very despondent or very angry and demand more cash. Well INTC doesn't want to be forking out a lot of cash when we hit a recession and their sales are declining! People won't accept options as payment if they believe that stock prices are never coming back! Companies that reset the strikes lower will dilute the hell out of their stock. Then you have the folks who just got hired on at INTC and had their options grant set when INTC was $75 a share! They are probably pretty pissed right now. This is all just one big disaster, and the only way to keep it from unraveling is to keep people content. You have to keep stock prices moving higher so you can continue to fleece your employees by making them think they are getting rich by working for you (via stock options). When they figure out the market aint coming back anytime soon and a) start demanding cash for their work to pay off their debts or b) start cashing in options as fast as they can, then it's too late and the whole house of cards will come crashing down. P.S. This kind of downward spiral affects AMZN as well. AMZN has to grow, and grow fast to make it's stock go higher correct? People don't want a money losing retailer with no growth. Trust me on that. Well if AMZN is going to grow like a weed how are they going to hire the workforce to finance this growth? With lucrative stock options? I wouldn't touch AMZN stock options with a ten foot pole. If I worked at AMZN I would want cash for services rendered! What happens when AMZN's stock doesn't come back and employees start to defect? How can AMZN afford to pay their employees in cash considering they just bleed money? There is only one solution. Con people into thinking AMZN's stock is cheap and is going to make a huge comeback. That's why we need a 50 basis point cut from Greenspan quick. You've got to keep taking the heroin shots in the arm otherwise you feel sick..