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David Trainer  

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  • 3 Reasons Why Amazon's 'Cash Flow' Is A Trap [View article]

    The problem is that operating leases allow a company to immediately earn revenue from an asset while not paying the full cost up front. That means if you're comparing two companies, one of which buys an asset and one that leases it, the leasing company is going to appear to have superior cash flow in the initial year. However, the business of the leasing company is not in any way superior, it just structured the transaction differently.

    Think of operating leases as the equivalent of taking on debt to fund the purchase of an asset. In both cases, the company will experience very little cash outflow initially but will continue to pay the cost over the coming years, either due to interest or rental expense. Investors need to look past the financing structure and understand that, operationally, these are fundamentally similar transactions.
    Sep 19, 2014. 03:43 PM | 7 Likes Like |Link to Comment
  • 3 Reasons Why Amazon's 'Cash Flow' Is A Trap [View article]
    baerrus - here is my methodology for FCF:

    Now, pls explain how I play loose with "Standard" terminology. I think that is exactly what AMZN is doing - that is the point of the article.

    On the other hand, my firm calculates FCF consistently across all 3000 stocks we cover. I also think we calculate more accurately.
    Here's a white paper on all the adjustments we make to reverse accounting distortions:

    Here's a summary on why and how accounting adjustments are important:
    Sep 24, 2014. 12:56 PM | 6 Likes Like |Link to Comment
  • 3 Reasons Why Amazon's 'Cash Flow' Is A Trap [View article]
    Ernest - are you about that....your logic only works if you are NOT an equity holder. Stock-based compensation costs equity holders. Ignoring that fact only leads to overvaluing an investment.
    Sep 19, 2014. 03:11 PM | 6 Likes Like |Link to Comment
  • Is There Hope Of A Turnaround At Angie's List? [View article]
    One really interesting statistic to note is marketing cost per paid membership acquired. For the most recent quarter ANGI spent $90 on marketing per new member, up 13% from a year ago.

    ANGI is having to work harder and harder to keep adding new members.
    Aug 21, 2014. 02:32 PM | 6 Likes Like |Link to Comment
  • Danger Zone: Stocks With Most Misleading Non-GAAP Earnings [View article]
    The difference is that NOPAT is a comparable, independent metric rather than a number being put forward by the companies themselves. Investors are free to set their own rules for how to value a company, but those rules should be thoroughly grounded in the actual underlying economics of the business, and too often non-GAAP earnings don't meet that standard.

    I included Tesla not because their non-GAAP rules are especially egregious, although the amount of stock compensation expense included is large, but because they're a great example of how a company will exclude expenses but not mention a non-operating, non-cash gain from foreign currency exchange fluctuations.
    Jul 23, 2014. 10:20 AM | 6 Likes Like |Link to Comment
  • No Progress From Amazon In 2013 [View article]
    Jeffry Chmielewski:

    That's a good point about the off-balance sheet liabilities. They currently have about $4.2 billion in off-balance sheet debt due to operating leases.
    Feb 10, 2014. 09:25 AM | 6 Likes Like |Link to Comment
  • The "New Normal" Equals More Downside For Netflix [View article]

    When companies pay employees with stock or defer payments on capital expenditures, they are essentially using financing cash flows in order to offset these costs.

    Think of it this way. If a company were to pay employees $50 million and sell $50 million worth of stock to the public to cover that expense, that would deduct the $50 million from operating cash flow and add the $50 million to financing cash flow. If a company pays its employees $50 million worth of stock, the effect is the same from an economic perspective, but it as treated as a "non-cash" expense.

    By the same token, if a company takes on $50 million in debt in order to buy manufacturing equipment, that is recorded as a $50 million capital expenditure and $50 million of financing cash flow. If a company agrees to pay that amount in the future, the effect is essentially the same, as it has this future obligation to the supplier instead of to its creditors, but no cash outflow is recorded.

    By counting options expense and future obligations as cash flow, we ensure comparability between companies using different financing techniques and hold companies accountable in the present for their actions.
    Oct 17, 2014. 12:36 PM | 5 Likes Like |Link to Comment
  • Danger Zone: Comcast [View article]
    chopchop0: The NBCUniversal segment, while it is growing, cannot offset the competitive pressures in the internet and cable business. NBCUniversal made up 23% of Comcast's operating income last year. Growth in just that segment is not going to meet the expectations the market has for Comcast.
    Feb 28, 2014. 10:33 AM | 5 Likes Like |Link to Comment
  • Inventory Risks Loom For Apple [View article]
    Great work. Objectively presented.

    Truly, the value of Seeking Alpha declines every time people make wacko comments, esp those that make personal attacks on authors who make fact-based arguments.
    The obvious bias and refusal to recognize fair do they imagine anyone takes them seriously.
    Feb 22, 2014. 09:15 AM | 5 Likes Like |Link to Comment
  • No Progress From Amazon In 2013 [View article]

    It takes more than revenue growth to create value for shareholders, and Amazon took a step back last year in terms of margins and ROIC. In addition, the revenue growth has slowed down. Amazon has absolutely been a disruptive company, but the growth expectations embedded in its stock price are simply too high.
    Feb 10, 2014. 12:14 PM | 5 Likes Like |Link to Comment
  • Danger Zone For This Week: Apple [View article]
    ISRG buyer:
    Thank you for your comment.
    I do not short story stocks. Too much momentum and retail money in the stock means it an more irrationally for long periods of time.

    The goal of New Constructs' research is to further the knowledge of all investors so the market allocates capital more efficiently, which leads to a higher standard of living for our society.
    May 15, 2013. 12:08 PM | 5 Likes Like |Link to Comment
  • Advanced Battery Technologies: An Egregious Chinese RTO [View article]
    It is true, you would be surprised how little real diligence, like what is described in this article, gets done on investments by institutions. That is why I created my own research firm to make going thru financial filings and footnotes an efficient process.

    I have marketed my research, which specializes in delivering info from footnotes, to 1000s of professional investors, all of who claimed to be value investors or analytically rigorous. And about 90% of them argued that the Notes to the Financial Statements did not matter. Real, good diligence is rare - and a big advantage to those willing to put in the time.
    Mar 30, 2011. 12:03 PM | 5 Likes Like |Link to Comment
  • 3 Reasons Why Amazon's 'Cash Flow' Is A Trap [View article]

    Whether Twitch works out depends on the long-term popularity of live video game streaming, which is hard to predict at this point. Either way, for ad profits to support Amazon's valuation it would have to make a much bigger push into what is already a crowded and competitive field.
    Sep 19, 2014. 11:32 AM | 4 Likes Like |Link to Comment
  • 10 Wonderful Companies That Are Bad Stocks [View article]

    That's the thing about momentum stocks. It doesn't matter... right up until the point that it matters a great deal.
    Jun 19, 2014. 11:34 AM | 4 Likes Like |Link to Comment
  • Amazon's New Smartphone Spells Trouble For Apple [View article]
    appl believer:

    I'm actually bearish on Amazon as well due to the company's razor thin margins, which is part of why I think an Amazon smartphone could be dangerous to Apple. Amazon can spend as much on production as Apple and sell for much cheaper because it's willing to accept lower margins.
    Jun 9, 2014. 12:22 PM | 4 Likes Like |Link to Comment