Peter Larson

Value, momentum, research analyst
Peter Larson
Value, momentum, research analyst
Contributor since: 2012
NO!
Buying on margin means you pay interest on the investment.
While it is a good bet that the market will "go up" at some point in your future, it is NOT likely to appreciate faster from today's levels than interest will accrue on your margin.
Additionally, the strategy you are advocating is what gamblers call a "Martingale bet". These strategies do not work and they often leave the practitioner bankrupt.
If you want to size a bet/ risky investment properly, use the Kelly criterion.
Paolo-
Stop conceding that it isn't going broke. Amazon already IS broke.
We are just waiting on the tax authorities to declare it.
Note 11- Amazon owes $1.5 billion in back taxes for 2005 and 2006 alone. In the last annual report they finally admitted they also owe the IRS back taxes for ALL subsequent years as well.
$1.5 billion is more than Amazon actually made in 2005 and 2006. I bet dollars to donuts the unpaid taxes exceeded profit in the eight years since as well. At a minimum, they owe something like $1.5 billion x 5, which is more than they have in working capital even after the last round of loans.
That's in the US. Internationally they are being pursued back as far as 2003. The FIRST year they made a (very thin) profit!
I seriously doubt that Amazon has EVER been profitable except through tax fraud. When the bill comes, they will be forced to restate earnings, and the $1.9 billion in retained earnings will be more than wiped out.
Amazon took out $6 billion in loans last year, which they will use to pay most of the tax bill. But they still aren't profitable even with the ongoing tax underpayment. Who will underwrite another loan to an unprofitable company with a recent tax accounting scandal, negative retained earnings (probably in the billions), and NO history of profits, ever?
Bezos could have easily solved this at any point in the last two-three years by issuing stock and using the proceeds to acknowledge and pay the bills. But he hasn't done that and in the process shown us he won't do that. He chose to cash out his own stock at an inflated price over keeping the company solvent. That tune won't change until it's too late.
That being said- if you have to owe an absurd amount of money to some entity, you could do worse than world government's. A bailout is just as likely as bankruptcy.
We can say shit?
Cool shit.
"Though I don't think it ever happened before with such a large, beloved and visible company."
-Really?
Have you looked at ANY historical bubble? They all went on and on.
Why can't we invest in Oxygen?
And that cash on the balance sheet is likely already owed in back transfer taxes. Which may finally be due before the third quarter.
Did you see how they went from "we may owe 1.5 billion from 2005 and 2006" to "we may owe 1.5 billion from 2005 and 2006... and also we owe money for every year since" in the last notes?
I would never hire Gary.
But I do wish him well.
Based on a number of metrics, Amazon is now a bankruptcy candidate.
And I don't think it's just metrics.
I recall a week or two ago seeing an analyst projecting that Amazon would beat expectations.
Huh? YOU'RE the analyst, if you think the number will be slightly higher why not just raise it?
We should start putting out articles about how we expect Amazon to make $3 billion in profit next quarter, but think they will miss.
They've been reticent to say what they will do with cash flow now.
For one thing, they may be obligated to buy out Pearson Nook shares under terms matching Microsoft's over the next 15 days.
After that, they will probably hold on to any cash until after the spinoff, to ensure both Nook and Barnes and Noble have sufficient balance sheets to keep all interested parties and debtholders satisfied at the time of the spinoff.
They may do a dividend and/or buyback in conjuction with the spinoff. That's a Liberty favorite.
Didn't read the article, but I've always wanted to use that headline.
"The chorus of nay-sayers probably scared many investors out of BKS shares at the worst possible time."
Ah but WallStreet,
When other investors are scared off, that is an opportunity for us, no?
Most of the money I have made in BKS, I have made by understanding that Riggio orchestrates PR for the benefit of his own portfolio. Perhaps unintentionally at times, but he is more than happy to let the stock drop on unclarified misperceptions so that he can buy more at a lower price.
Case in point: Microsoft's $238 million loss on the Nook unit is Barnes and Noble's $238 million gain.
Evan,
This is an immature reaction to a snide, but accurate comment.
I've written multiple articles on this stock at SA, and when I (and others) do we put a lot of effort into understanding the ins and outs of the business. As well as coming up with unique and (hopefully) meaningful insights into the company strategy.
Your article went on for quite long, and did not contain much more than verbose opinions on general knowledge, and in some cases inaccurate knowledge.
For example, you stated that the Nook would not be carried in the Barnes and Noble stores. Management has not stated that or even implied that. They have on multiple occasions that there would continue to be a strong working relationship between nook and retail under any scenario.
But more troubling is that you have replied to Debunker, using 321 words, rather defensively and still without adding anything new. This is frustrating for our readers and I would ask that you not do so. And I would certainly ask that you not tell them to click on articles (since the next article might be mine ;)
Thank You,
Peter Larson
PS: I am generally bullish, and you are bearish. That is fine. This isn't about that, this is about the tone of your reply.
I don't think the Nook agreement was ever part of any strategy at Microsoft.
They were going to lose in patent court, so they paid Barnes and Noble off.
Barnes and Noble made $185 million selling nothing.
Despite what you see on Seeking Alpha, there can't be thaaat many "Amazon haters" around given the stock is still at $300"
The market doesn't require a 50/50 split in per capita viewpoints. It also depends on the amount of money the view-holders are putting in play.
I think with Amazon, you have a small number of bulls. But those longs control a large amounts of capital and are willing to put it in play in a meaningful way. Meanwhile, there are a lot of shorts, but most only have small positions or are just sitting on the sideline.
"For Amazon, stock promotion is a core competency."
Brilliant.
Seriously, how are they solvent?
"Peter Larson who? He was right. T owns AMZn."
-Yo?
Or are you talking about the Kindle exec?
Congratulations, Paulo.
That is all.
And where IS our beamer bragging friend today?
Warriors... come out and plaaaaay.
That's because it is a slapdash definition. If you are having trouble groking the concept it helps if you work a little harder than simply Googling the term and copy-pasting the result.
A Ponzi scheme is anytime that cash flow from new investors, rather than legitimate return on invested capital, is used to make payments to existing investors. If you recognize that from the consumer perspective the Amazon Prime membership fee is an investment, and the free shipping and various other services is the dividend payment of this investment, this is EXACTLY what they are doing.
I'm not saying this is true for all subscription programs- only subscription programs where
1. There is a true marginal cost (ie, the company is promising a discount steep enough that they are actually selling at a loss).
and
2. The average user consumes a value greater than the upfront fee.
It takes some digging to figure out Prime falls into this category.
True, but Amazon almost always lowballs guidance and has for years. The high end is what an honest company would set as the midpoint and the low end is just to make it sound better later when they "beat expectations".
The reason they aren't beating expectations anymore is because analysts have stopped taking the low end seriously and now just peg to the high end.
We should probably expect a 4Q sales increase around 18%.
Forget the PE ratio- if Amazon ever has an E again, I will consider buying it.
We DO have a Ponzi scheme here. Look at the balance sheet.
Amazon's unearned revenues (i.e. Prime membership fees) are the only thing keeping them solvent without mass stock dilution. But to get those fees Amazon has promised Prime members all the free shipping and shows they can handle. etc. etc.
Amazon is losing money overall on this arrangement, but they don't reduce benefits because they are using the upfront fees to pay bills now.
That's a Ponzi Scheme.
Luckily for Amazon, they would probably have a business without Prime. So a Ponzi scheme in one portion of the business might not end up being fatal. But it isn't resolved yet.
I have.
It is worth $52.32 per share as of October 10, per a standardized DCF using analyst estimates. In February 2014 it was $175.
Although, since I have started tracking these things systematically, I don't recommend using a DCF as a "price target". It is more significant that the DCF value has decreased over the last year than the value itself.
Yes, both my 4 year old and my 2 year old are fine with app switching and even resizing apps, sliding to unlock, etc. They can get to their favorites.
But come on- toddlers can USE the tablets but the OS is not designed for them. You wouldn't just hand it to them out of the box and expect them to find something educational.
Look at the top of the home screen of the new Amazon kids tablet. The very first icon is a search function, the second is books. How do either of those options make sense for someone who can't read yet?
By contrast, the Leapfrog homescreen is large colorful shapes the kids will intuitively recognize. Some of the icons have text, but only beneath the picture.
I'm not saying either product is a bad idea, I'm just saying one is clearly aimed at a different age group than the other.
I don't think it is a good comparison.
The Amazon tablet is clearly targeting children who have already learned to read. Perhaps elementary school age. There are content controls, age-appropriate content, but none of that would mean anything for a toddler who is too young to read, write, or possibly even speak. A toddler would be unable to use the android OS.
The leapfrog brand and tablet is targeting toddlers. It may seem weird if you haven't had children in the smartphone/tablet age, but kids learn to poke at screens before they learn to speak. That's what the leapfrog product is - just a screen with fun things that pop up.
But the terms DO match. The credit facility is good for two years, and the CFO plans on retiring next summer.
Tom Szkutak deserves recognition as a genius.
It's not hard to understand: Amazon missed the boat.
If Amazon doesn't buy Twitch, Twitch might start selling games and consoles directly. This would cannibalize Amazon's business and possibly pressure margins.
There's maybe a quarter billion in upside, the rest is just defense.
Expect to see more of these acquisitions every time someone thinks of something Bezos should have.
"Here at Amazon we firmly believe that if you repeat the same thing enough times people will start to believe it,"
-Good show.