Here is a post from the MF pages on the 'net at: boards.fool.com
It is written by someone called "privateequity" and he/she is very well informed on how the IPO market and venture capital market works. I think these are some of the most valuable posts found on the 'net concerning AMZN and suggest that everyone read all of them at the Motley Fool site.............
Subject: Re: BORDERS IS HERE (really)
Author: privatequity Date: 5/11/98 11:56:24 PM (ET)
Castanza, I can't argue with your last paragraph. And while we are on opposite sides of the "bet"
on Amazon, I'm following your lead in never holding more than a small percent of my portfolio in
puts-you are right in that this should be mad money for all of us.
You raise a more interesting question in your next to last paragraph " bears on this board would like
to believe that the 'idiot masses' are long this ridiculous stock and that they are the intelligent
minority - this is simply not the case". For the life of me I can't figure out who is short and who is
long and comments by some, as you point out, are quite confusing.
I posted this a few days ago but have tried to flesh out the array of forces (longs and shorts) on the
battlefield. I think the volume has dropped in the last three days (except for block sales) because
small and big investors may be frightened by the recent negative stories on internet stocks-I'm not
sure.
Here is a hypothesis (dedicated to Cheese) of who the sellers are :
WHO'S GOT WHAT?
Bezos and family 12,260,000 shares
Directors 300,000
20 unafilliated investors 2,800,000
Kleiner Perkins 3,400,000
Softwear Company 225,000
Options (exercised) 2,166,000
Public 3,000,000
_________
24,151,000
[NOTE: These are only approximate numbers gleaned from the S-1 filed before the IPO and
roughly
tied in with April 24th 14A filing. I have not tracked back on insider selling reports or options
exercised since the IPO-this would be a worthwhile project for someone since an insider
who has already sold is always more likely to sell again if a panic develops.]
WHY THEY MAY BE RIDING A TIGER.
Several reasons, first is stock price overvaluation. As you know, my valuation is roughly $14 per
share using company numbers, assumed rapid growth rate, etc. There is alway some reasonable
range
however, and I couldn't attack someone's numbers and assumptions who values the stock at $10 or
$20. Any valuation over $25, IMHO, means someone is smoking an illegal substance. This gross
overvaluation means you can't issue a secondary offering nor can you use your stock as a currency
for acquisitions (unless it is fuzzed up like a 90% cash, 10% stock transaction) because you can't
pass the fairness opinion the buyers investment bank has to perform on the stock price.
(Remember, smart money is usually not
stupid) The irony here is that the stock's great success in the aftermarket now severely limits the
options of the shareholders listed above. HOLD ON TIGHT TO THE TIGER!
WHAT DO YOU DO IF YOU ARE...
A. Bezos & Fam. Jeff probably hoped for a $30 stock price in May 1998 in his wildest dreams.
The
5 to 10 times overvaluation poses a real problem since he can't play the eps game and issue stock
to acquire other companies and he is certainly no takeover candidate (you try to takeover
undervalued not
overvalued targets plus there is a preferred stock poison pill buried here). He can't do a secondary
offering to the public or sell a minority position without disasterously diluting his existing public
shareholders (that's why he did the wacky, but tactically clever, junk bond offering). CEO Jeff is a
paper billionaire
though in his heart he knows he is "only" worth about $200 million. But bears watch out, Bezos is
no
slouch with his magna cum laude from Princeton and, more importantly, with the best investment
banking advice money can buy. Tricks can always be sprung here. Bezos best approach since he
has
a good sum of cash on the balance sheet is damn the torpedoes, FULL SPEED AHEAD i.e.
execute
the business plan as aggressively as possible and try to goose this minus 19% profit margin
company
to partially catch up with its current stock price over the next five years. He should also fuzz things
up a bit- to befuddle and confuse the market- to give the analysts more air cover than he has to
date
with strategic alliances, joint ventures, new product launches, etc...all to avoid any potential analyst
downgrades. Watch this guy for some creative moves.
B. 20 unaffiliated investors. These were the people you and I would like to be who got in before the
IPO and before the venture capital money. They intrigue me the most since they got in at 33 cents a
share and probably have the bulk of their new found networth tied up in AMZN (their $50,000
average investment now equals $13 million). Many of them know this stock is grossly overheated
and it's time to prudently get some money off the table. These are prime potential sellers and should
really panic if the stock ever hit a sudden downdraft. Their selling, unlike that of Bezos or the
Directors, wouldn't be perceived as a bailout.
C. Kleiner Perkins. K/P does what I do for a living...make a private equity minority investment in a
rapid growth company before it goes public. Like all smart money private investors making minority
investments, they protected themselves with certain contractual "rights" before giving AMZN their
money. One of these rights are "demand registration rights" which allow them to force the company
to make a secondary public offering in which K/P could sell its stock and force its way out to get
"liquidity". However, K/P never dreamed the stock would be so overvalued that they couldn't make
the demand without having a gazillion law suits from the small public shareholders who would be
blown away
with the dilution.
Almost none of the 24 million shares are locked up any more (180 days from the IPO was the max
lock-up) BUT they are subject to Rule 144A restrictions on volume, manner of sale, etc. Basically,
in one quarter, they can sell the greater of 1% of the outstanding stock or one weeks average
volume.
My group once did a private deal with a company that rocketed like AMZN after their IPO and
our
only recourse was to dribble the stock out over time. Luckily, the price held up just long enough for
us to do it. Another K/P option would be to sell their block in another private placement for about
$20 per share though they would catch a lot of flack from insiders and complicate their own future
deals for
signalling a less than current public market price. They would still make an awesome return at even
a $20 selling price.
D. OPTIONS HOLDERS. Some aren't restricted by 144A due to size and almost certainly have
the bulk of their net worth in AMZN. They should match their block sales with shorts needing to
buy to cover so both can get out as fast as prudently possible. Perhaps this is already being done
judging from the spikes in volume. I think short interest is declining a lot but we won't know till the
next numbers are released.
E. PUBLIC GROUP A. Unsophisticated "subjective factors" small investors who think a rapid
growth story can't be overvalued: a few will panic out at the first $8 fall but most will ride it down
till it reaches some uncomfortable equilibrium.
F. PUBLIC GROUP B. These are the more professional or disciplined investors who bought-in at
the IPO. They
may be a little nervous now since momentum has stopped and the press is turning negative on the
internet overvaluations.
G. PUBLIC GROUP C. These are the small aggressive growth funds who bought in at the IPO but
are now concerned about second quarter results. Best approach, wait for the May 28, 1998
Annual ameeting afterwhich there is always excited buying and dump their 10 or 50,000 share
block quickly. Even if they only get out at $70 per share they've made out like bandits.
All of us, the shorts and A through G above, are riding a tiger. This is not an investment but an
historic speculation. Exciting, isn't it? |
