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To: edamo who wrote (271)	3/30/1999 5:52:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 419

ed, enlighten me do the internets purely fund themselves with their stock offering...and if so as they mature and require lines of credit how is it secured I am only familiar with four internet companies: AMZN, AOL, BKS (which is a hybrid) and DELL. The only one that concerns me in the context of cash flow is AOL; the other three are healthy. AOL funds itself by a combination of using suppliers (it buys books and ships them almost immediately, but it doesn't need to pay suppliers for around 90 days! That little trick added almost about $79MM in operating cash flow, and was balance by an inventory increase of only around $21MM. Total inventories were $29.5MM, which represents only about 22.6 days worth. Since there are no receivables this yields a Cash Conversion Cycle of -64 days. That's what I call operating leverage. But it is all for naught if the company cannot generate a profit. For the rest of your question, the company sold approximately $14MM in stock and took on an additional $248MM in debt. I have no idea about the security of the debt. Bur here is the problem in a nutshell: the extremely high operating leverage can move against the company if growth stagnates because there is no profit engine to drive it. Ed, the more I look at this company the more in awe I stand of how this financial structure was pulled off to begin with, and the more in awe I stand of AMZN's management's success in convincing analysts that there is value here. I understand from an analyst friend that the reason funds buy these companies is because the pension funds are reviewed on a quarterly basis and the performance is demanded over short periods of time, never mind the risk. Imagine, pension fund managers as momentum investors! TTFN, CTC