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Amazon's (AMZN) Jeff Bezos says he would prefer to reward investors with cash flow instead of...

Amazon'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.
Comments (17)
  • gensearch2
    , contributor
    Comments (1459) | Send Message
     
    Note to self: Look into how I can spend AMZN's free cash flow.

     

    Note to self: Call bank and ask if I can get a loan secured with AMZN's free cash flow.
    8 Jan 2013, 08:00 AM Reply Like
  • HS
    , contributor
    Comments (215) | Send Message
     
    Bezos called bank and sold $200,000,000 worth of shares. AMZN's CFO sold almost all of his AMZN shares.

     

    Longs are stuck with FCF
    8 Jan 2013, 12:23 PM Reply Like
  • cabmaker
    , contributor
    Comments (139) | Send Message
     
    With freight cost and a high pe there is a lot of risk in this stock. Should see $225 before $275
    8 Jan 2013, 08:05 AM Reply Like
  • marshamak
    , contributor
    Comments (12) | Send Message
     
    All this statement tells me is that when earnings are announced, amzn is in the toilet.
    8 Jan 2013, 08:06 AM Reply Like
  • Joe Eifrid
    , contributor
    Comments (338) | Send Message
     
    I can't believe Bezos would say that! That's idiotic. AMZN's recent operating margin is just less than one percent. Analyst are expecting an earnings loss for their busiest quarter of the year this quarter. Bezos resides in bizarro world where losses do not matter, and can in fact be spent? Weird.
    8 Jan 2013, 08:18 AM Reply Like
  • 215304
    , contributor
    Comments (629) | Send Message
     
    Joe, sadly and unbelievably, Wall St. has bought Bezos' bizzaro bull crap. How else could Morgan Stanley raise it's price target to $300 and give it an outperform rating when the company is losing money? This is an unbelievable travesty, that a mega cap company valued at over $120 billion can't make money and Wall St. loves it pushing it to new all time highs while Apple makes money hand over fist, pays a dividend, and gets knocked down over 20% because Wall St. has determined that it still isn't making enough money. So Amazon doesn't have to make any money, but Apple and all other large caps are held to a different standard. Amazon's earnings have declined year over year 8 quarters in a row, name one other mega cap company with that record that hasn't seen it's stock price evaporate.
    8 Jan 2013, 10:39 AM Reply Like
  • krk
    , contributor
    Comments (821) | Send Message
     
    Evidently the analyst cheerleaders have bought in on Bezos’ spin that Amazon can operate profitably, albeit with shrinking margins, which will be more than offset by a long runway of faster revenue growth.

     

    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.
    ....
    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.
    8 Jan 2013, 04:38 PM Reply Like
  • chopchop0
    , contributor
    Comments (3309) | Send Message
     
    Free cash flow. That's like a mirage in the desert we call Amazon's profitability.

     

    "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 Jan 2013, 08:18 AM Reply Like
  • Joe Eifrid
    , contributor
    Comments (338) | Send Message
     
    If AMZN sold for the same multiples as AAPL AMZN would be selling for about $25 a share. At least APPL has some pricing power in their products and still has extreme customer loyalty. Like others. my loyalty to AMZN only extends to getting the lowest price.
    8 Jan 2013, 09:20 AM Reply Like
  • HZLIU
    , contributor
    Comments (212) | Send Message
     
    AMZN can have free cash flow easily by taking more debt or selling stock. Am I right about that?
    8 Jan 2013, 09:46 AM Reply Like
  • mustbepatient
    , contributor
    Comments (84) | Send Message
     
    HZLIU, debt or share issuance would be would be cash flow but not free cash flow. FCF is a very useful metric for determining how much excess cash a business is generating.
    8 Jan 2013, 10:07 AM Reply Like
  • Joe Eifrid
    , contributor
    Comments (338) | Send Message
     
    ...and things just got more competitive (even lower margins) for AMZN...

     

    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.
    8 Jan 2013, 09:57 AM Reply Like
  • HZLIU
    , contributor
    Comments (212) | Send Message
     
    Without tax benefit and S/H cost, Amazon is no more price competitive. Indeed, lot of staffs in Amazon.com are priced higher than Target store. That is why Bezos need Prime Member and their royalty and wallet. To make retail better margin, prime members have to pay higher price for the convenient and service. Buying online will be luxury not for saver in near future. The best profitable business in Amazon is still Book plus digital content. Online shopping can not replace physical store but put pressure on price.
    8 Jan 2013, 10:17 AM Reply Like
  • krk
    , contributor
    Comments (821) | Send Message
     
    Best Buy has been price matching over the holidays till 24-Jan. So, for those in states where Amazon now collects sales taxes, no point showrooming any more.

     

    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.
    8 Jan 2013, 04:08 PM Reply Like
  • Bruce Spratling
    , contributor
    Comments (78) | Send Message
     
    I think he's right. Profit doesn't matter.
    8 Jan 2013, 10:02 AM Reply Like
  • HZLIU
    , contributor
    Comments (212) | Send Message
     
    Game is on. AMZN is up and AAPL is down. AMZN is down AAPL is up. Brokerage firms move their darling from AAPL to AMZN. Professional traders trade the momentum, not care about fundamental. Who are the Winners and losers?
    8 Jan 2013, 10:02 AM Reply Like
  • veloce49
    , contributor
    Comments (13) | Send Message
     
    Don't forget that Bezos came from Wall Street. He definitely knows what buttons to push.
    8 Jan 2013, 04:21 PM Reply Like
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