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

To: Glenn D. Rudolph who wrote (23148)	10/27/1998 12:23:00 AM
From: Oeconomicus	Read Replies (2) \| Respond to of 164684

Glenn, thanks for pointing out the 8-K/A. Odd is the best word to describe it. I understand the purchase accounting and the resulting goodwill. I guess our choices are to have AMZN creating net worth out of thin air by paying $183 million of stock for $6 million of assets OR, as others have done only to be slapped on the wrist by the SEC, write off 95% of the acquisition price day one so they don't have to take amortization charges against future "earnings". Either approach can mislead the careless reader, but I will say that AMZN's approach, at least as far as the balance sheet goes, is less misleading. The $176 million of purchased goodwill from this deal ($229 million total on the books) sticks out like a sore thumb and the book equity created as a result, when there was no equity left without these deals, stands out as well. Unfortunately, I suspect, most buyers of AMZN stock wouldn't even notice that tangible net worth is now negative or that the intangibles booked to offset this creation of book equity will be written down to zero within three years, taking book equity down with it. Most will just look at whatever makes it onto the Yahoo Profile for AMZN as "Book Value per Share" and assume that's a meaningful number. The fact is, were AMZN not trading at more than $100 per share when the deal was done, then the Junglee shareholders probably would not have gotten the same $183 million valuation. AMZN is forced by its valuation to be more generous in valuing its targets in order to get them to accept the inflated AMZN stock and take the risk it may collapse. Were AMZN more reasonably valued when these deals were done, they would not have had to book the deals at such high prices and would not have created either the goodwill or the "instant equity". JMO, of course. Now, what I don't understand about this filing and what really bugs me about it is those "proforma" income statements. This is purchase accounting, not pooling. In a pooling, as I understand it (and I'm not a CPA), you do go back and show historical results as if the two companies had been one. But, this is a purchase. AMZN bought the stock of Junglee and allocated the purchase price to tangible and intangible assets. What happened on Junglee's P&L and equity accounts prior to the effective date of the purchase is, for accounting purposes, irrelevant. You do not go back and restate prior periods; you simply start counting the revenues and expenses of the acquired company from the closing forward. The only purpose for preparing these proforma 1997 and first half 1998 income statements is to show what the combined results might have been had they been one company. In other words, these appear to be "for illustrative purposes only" rather than being intended as GAAP conforming restatements of prior period results. Unfortunately, if they are intended to be informative, they fail miserably. Anybody with a third grade education could add up the two company's revenues and expenses and, since they said there were no material intercompany transactions, you'd have your proformas, but that's not what they did. What they did was to show the combined results as if they had paid $183 million for Junglee on Jan 1, 1997 and adjusted the combined results for a year and a half of amortization, but called the adjustment "Merger and acquisition related costs" instead of amortization of goodwill and provided no explanation (even though they refer the reader to footnote (c)). This is supposed to be "illustrative"? The truth, IMO, is that the historical revenues and expenses of Junglee are immaterial, they provide no meaningful information about the combined condition or prospects of the companies, and these historical "proformas" serve no purpose that is helpful to the investing public. Whether intended to or not (I'll leave intent and the exposure to tort claims to others.;-)), they serve only to confuse the comparison of future results to historical ones. When they report on Wed, will all the analysts be on the same page? Or, will some be talking about positive comparisons to historical "proforma results" while others are seeing growing operating losses? If everyone is confused, can anyone be negatively surprised? Just some late night thoughts that may make little sense when I read them again in the morning. Bob

To: Glenn D. Rudolph who wrote (23148)	10/27/1998 1:09:00 AM
From: e. boolean	Read Replies (1) \| Respond to of 164684

Glenn - You should put together a simple report on the downward revisions in earnings estimates over this year and the downward revision in "pro forma" losses and e-mail it to Greg Miles/Joe Kernan/David Faber on CNBC (the latter two c/o squawkbox@cnbc.com, the former c/o powerlunch@cnbc.com). They have all been expressing increasing cynicism about the revised earnings estimates, etc., and might like to have some numbers at their fingertips. e.b. Also, I thought they had more cash than $7M (plus Junglee's $4M makes $11M)?