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Amazon's (AMZN) Jeff Bezos says he would prefer to reward investors with cash flow instead of...
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Tuesday, January 8, 7:52 AM ETAmazon's (AMZN) Jeff Bezos says he would prefer to reward investors with cash flow instead of boosting margins. The exec has his focus on the company's formidable free cash flow position which is forecast to increase 65% this year to $10.68 per share. "Free cash flow, that’s something investors can spend," Bezos sings.
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Note to self: Call bank and ask if I can get a loan secured with AMZN's free cash flow.
Longs are stuck with FCF
This Businessweek piece I think does a good job deciphering the Bezos "Field of Dreams" doctrine:
http://buswk.co/XibI6l
Quote: Bezos has been reliably saying this sort of thing for years, so let’s untangle it. FCF is cash from operations minus capex, or what’s left over after spending on warehouses, conveyor belts, robots, and data centers for its cloud computing business. Bezos is more concerned with driving cash flow than making money because he believes the opportunity offered by the Internet, and by ecommerce, is massive and still largely untapped. To him it’s still a land grab. So he’s prepared to cut prices to the bone and add all those freebies to cultivate customer loyalty and drive sales growth. Then he reinvests it all in more low prices and further expansion, thus driving additional customer loyalty.
If you’re an Amazon customer, it’s a virtuous cycle. If you’re a competitor, it’s the Bermuda triangle of business. Investors, comforted by Bezos’s repetitive consistency with this strategy over the years, have so much faith in him that they’re willing to tolerate razor thin or nonexistent profits in exchange for continued market share gains and a future promise of windfall profits. And by the way, low margins to Bezos are a competitive advantage. If you’re eking out sub-two percent profits, which Amazon is doing, your market isn’t very enticing to rivals. When margins are nice and fat, your business is a delectable target.
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Here’s where the Bezos Doctrine proves powerful. It doesn’t have to be good. It just has to be appealing to customers. As long as consumers are consuming and shareholders are buying what Bezos is selling, Amazon looks fairly unbeatable.
"Meeting customers’ demands, even if that means lowering prices to build loyalty, will boost cash flow over the long term, Bezos said."
He is talking about commoditized items that everyone else sells too. If it's cheaper at Wal-mart, I'm buying it at Wal-mart, loyalty be damned
8:59 AM Is a clarification coming from Target (TGT)? First Adopter notes the information flowing from the retailer on its online price matching program (I, II) reads such that a consumer could match the prices listed at Amazon.com and receive yet another 5% off using their REDcard. If the deal holds, it's a coup for Target consumers but a bit of a margin pinch for the company.
But on the other hand, I wonder if "price matching" policies in time will morph into tacit "price fixing" among the major discount retailers and restore margins all around, including Amazon's, and boost its earnings but slow down its N.American revenue growth in its main revenue segment:E&GM. No conspiracy, just market dynamics, and maybe a little nudge, nudge, wink, wink, as they are all simply "matching" and not "beating" prices. There may be some crackerjack small retailers on eBay etc. with lower prices, but they may not matter much.