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  • Amazon added over 10M new Prime users during holiday season [View news story]
    What does Indiana, Nevada, Tennessee, North Carolina, Florida, Minnesota and Maryland all have in common?

    In 2014 Amazon began to charge sales tax in all these states.

    What does MicroSoft, Google, IBM, and Oracle have in common?

    They are all involved in cloud price wars with Amazon and more importantly these companies have "real cash flow".

    What does Walmart, Target, BestBuy, Home Depot, Staples, Costco, Macy's, and Sears have in common?

    They all basically did everything they could to prevent Amazon from growing revenue at 20% this quarter

    So then is this the quarter?
    Dec 26, 2014. 12:49 PM | 4 Likes Like |Link to Comment
  • Why I Believe Amazon Chose Debt Financing [View article]

    I guess your point is the current ratio was less than 1 at the end of Q3 at .89.

    For those who don't understand current ratio, the formula is:

    Current Assets divided by Current Liabilities.

    So the cash generated by the new $6 billion of debt will be added to current assets while the debt is added to long term debt which is not a current liability. So the current ratio will be greater than 1 when Q4 financials are released.

    And then the biggest question becomes:

    How long does it take for the current ratio to become lower than 1 again?
    Dec 18, 2014. 09:04 AM | 6 Likes Like |Link to Comment
  • Why I Believe Amazon Chose Debt Financing [View article]

    I think the Pecking Order Theory makes sense. When I was a teenager my dad taught me it was better to save to buy a car (internal funds) than to have to take a loan. Back in the 60s they did not have zero financing (with no reduction in price of car) so I guess some theories have exceptions.

    And along those lines, MicroSoft has about $70 billion of net cash to buy all those servers for their data centers and Amazon is forced to use Capital Leases which really is the same as debt (odd that Pecking Order Theory did not talk about Capital Leases).

    But I do think you are missing a big point here. Amazon is going to need more cash than ever for the servers/data centers and to get warehouses as close to the customers as Walmart has stores. And that $6 billion was just a small drop in the bucket (check out the PPE on Walmart's balance sheet). And without the internal funds your theory says is preferable, Amazon will have to resort to either equity, normal debt and capital leases. And here we can use a credit limit on a credit card as an analogy. Amazon's credit limit is very close to being all used up.
    Dec 18, 2014. 06:53 AM | 10 Likes Like |Link to Comment
  • Amazon's Profitability Can Further Decline In The Future (Part 2) [View article]

    The problem with operating margins is they don't account for the weaknesses in Amazon's balance sheet. Let me start with a story.

    I am retired and I have a lot of time and I "think" something historical will happen with Amazon.....the company that told us on 60 Minutes on the Sunday after Thanksgiving 2013 that they will deliver whatever to my suburban home with drones.

    So one area I have spent an enormous amount of time on was the sales tax issue. Just Google, "Amazon fighting sales tax" and you get hundreds of links.

    So if you did this you would understand how much effort Amazon put into not having to charge sales tax. Then in 2014, Amazon decides to charge sales tax in North Carolina, Florida and Minnesota before they had to. Wow! So I say to myself (remember very little transparency here, so I have to say to myself) this is a big deal, the company is changing their business model.

    So let me take this further. I start thinking this means, the company will need to start building warehouses quickly in these 3 all the other states they need more warehouses.

    And now we go back to your operating margin which does not include capex by either debt or capital lease. I think Amazon is going to have to spend a ton of money (they don't have) to grow their cloud business (data centers) and because of this change in their business model.

    So this logic, if correct, basically negates your looking at operating margin and more importantly raises the subject, "where does Amazon get these capex dollars"?

    Last week first Slim Shady and then Paulo wrote excellent articles on Amazon and the capital leases which get a lot deeper into my point here.

    Dec 17, 2014. 12:21 PM | 1 Like Like |Link to Comment
  • Amazon's Profitability Can Further Decline In The Future (Part 2) [View article]

    Good point about 3rd party which I realized.

    I think we will all learn a bunch this quarter. What I find interesting is how huge a range the earning estimates Amazon has, for both the next 2 quarters and 2015. I think this range is possibly much wider on a % basis than any company with a market cap greater than $100 billion in history of markets.

    You guys do a nice job. Maybe when we get closer to Q4 earnings, you can share your thoughts.
    Dec 17, 2014. 10:01 AM | 2 Likes Like |Link to Comment
  • Amazon's Profitability Can Further Decline In The Future (Part 2) [View article]

    I think you did an excellent job on the article but I do not understand how the logic in your article supports your $303 price.

    I believe Amazon has more headwinds at this moment than at any time in their history. The price war in cloud is huge. They lost close to 75% of U.S. sales tax advantage. The price matching by Walmart, Target , Best Buy and etc. is a statement that Amazon's competitors will not let Amazon grow at 20% a year without a fight. Another huge liability Amazon has is Amazon's competitors are turning their stores into warehouses and they have more of them. This could let competitors ship at less cost. Plus if a customer drives to store to buy or return, Amazon's competitors shipping expense is zero.

    And finally Amazon has an incredibly weak balance sheet. Having to use debt or a capital lease is just a much more expensive way to do business than Walmart owning a store with real equity on a balance sheet or MicroSoft building a new cloud data center with all the excess cash MicroSoft has on their balance sheet.

    I see the cloud price wars as a tipping point generating quarterly losses almost every quarter. I see Amazon's much better capitalized competitors in the cloud committed to preventing Amazon from continuing their lead in the cloud and not taking their foot off the pedal in these cloud price wars.

    So I see this as a two digit stock and that assumes they don't buy more Twitches or develop more phones. In that case I could see the company bleeding itself to a possible reorganization.
    Dec 17, 2014. 08:46 AM | 6 Likes Like |Link to Comment
  • My 2 Cents In The Cash Flow/Capital Leases Debate [View article]
    First of all I think both exercises by both Slim yesterday and Paulo today were excellent as they proved the logic in Amazon's calculation of Free Cash Flow is flawed specifically because it is base on Amazon's definition of Free Cash Flow.

    The problem is, in my opinion, the current logic of Free Cash Flow by itself is flawed because you are reconciling back to cash. I think Free Cash Flow would make more sense if you reconciled back to Stockholder Equity on the balance sheet. So what would this accomplish?

    Well first it would solve the Capital Lease issue. A capex purchase or capital lease purchase is an asset in both instances. And the corresponding liability would be either the cash paid, or the debt added if borrowing was involved , or the other Long Term Liability if a Capital Lease was used.

    Also almost all the existing lines on the existing Free Cash flow statement would exist because those lines are basically accruals needed to expand on what ultimately becomes a line item on the balance sheet and these same accruals are used in preparation of the income statement.

    But what you would really see if you reconcilled back to equity was the approximately $800 million goodwill write down taken on the purchase of Twitch. And you would be closer to the fact that whatever you want to call what the company is accomplishing is not turning out to be tangible equity on the balance sheet and really understand the "fruit" of this company is primarily the Stock Based Compensation
    Dec 12, 2014. 05:12 PM | 3 Likes Like |Link to Comment
  • Understanding How Amazon's Use Of Capital Leases Overstates Its Cash Flow Metrics [View article]
    Slim and Paulo

    I guess as has been stated here many times the reason we get authors to write these articles is to expand the thought process of the readers. So I think I could answer the question I asked above.

    The $1.547 billion of repayment I mentioned above "was" the TTM liability for the capital leases that were paid. That was not the future payment liabilities for the capital leases going forward.

    I guess at some point someone will (or maybe this has already been done) model what these payments will be going forward.

    Thank you both again, I am showing why I was asking to have someone write this article. Most of this was above my skill level.
    Dec 11, 2014. 12:13 PM | 2 Likes Like |Link to Comment
  • Understanding How Amazon's Use Of Capital Leases Overstates Its Cash Flow Metrics [View article]
    Slim or Paulo

    Please give me a hand reconciling this article, with the Cash Flow Statement and the Balance Sheet.

    In Cash Flow we start out with $5.057 billion of cash and cash equivalent, which we can reconcile to the Q2 balance sheet.

    In Cash Flow we end with a $5.258 billion of cash and cash equivalent, which we can reconcile to the Q3 balance sheet.

    Since cash has to balance, I think Slim said the entry for the capital leases was on the cash flow statement under FINANCING ACTIVITIES. And when I look there I see the line....Repayments of long term debt, capital lease, and finance lease obligations.

    OK I will assume most of this line is for the Capital Leases. My problem is this line showed an amount for the TTM of $1.547 billion. This number is much less than the $3 plus billion number that Slim discussed.

    What am I missing?
    Dec 11, 2014. 11:06 AM | 1 Like Like |Link to Comment
  • Amazon Admits The Era Of 'Price Sells Cloud' Is Ending [View article]

    I have lost more so far extending Amazon puts than I have lost on any single investment in my take this advice for what it Is worth...message board chatter.

    First, all the bears could be wrong. Amazon could re-invent itself like Apple reinvented itself. Plus for some reason all the metrics the bears tout are being ignored. If the stock traded on either it's income statement or balance sheet this could be an $80 or so stock and the $80 would be based on breaking up the company into 3 separate companies.

    1. The cloud piece would be worth something because of the large customer base and a competitor would be eliminated.

    2. My guess is e-bay would be interested in the third party piece.

    3. The customer buying data would be worth something to a Wallmart but Internet retail of the same product is never going to be very profitable.

    The problem is the company works better broken up because I think, as it stands, it will just bleed itself to death without the re-invention.

    So one point I am trying to make is this is not like 1997 (the sales tax alone is a no brainer).

    And the other point is the last thing you would want is to see your investment drop from $315 to $50 and you just did matter what your cost basis was.
    Dec 9, 2014. 03:24 PM | 1 Like Like |Link to Comment
  • Amazon Admits The Era Of 'Price Sells Cloud' Is Ending [View article]

    Your point is valid. A lot of what Amazon is doing is forcing it's competitors to make "necessary but not great" business decisions or as you said "under deployed cash". You got it.

    Let's leave the cloud. Do you think Walmart likes this price war Amazon started in Internet shopping? That is even worse than the cloud, because there is never an upside, always low margin business because of price transparency.

    The cloud, I think, at least has an upside. Once you really lock a customer in, you can raise your margins.

    So again, like you said, is this price war good for MicrSoft and Google. No. But definitely better than the alternative.

    Dec 9, 2014. 11:55 AM | 1 Like Like |Link to Comment
  • Amazon Admits The Era Of 'Price Sells Cloud' Is Ending [View article]

    I sent you the 3 links to the videos. Watch all three...will take about an hour. I was really impressed at how sharp (like mind-blowing) these three guys were.

    I am 64, my tech skills are old, so a lot of this was new to me. On the other side of coin, I was a programmer out of college and at age 37 I started a tech company (investment systems) that I sold, so I bring a little to table. Our margins were always less until it was hard to do without us. Ultimately I was doing long-term business at about 15 clients. To get a presence at a new client, I had no problem doing zero margin business for a while....which I did not broadcast.

    I think Amazon's balance sheet liability competing in the cloud with Google, MicroSoft (add IBM and Oracle too) is huge. Even bigger than losing sales tax advantage.

    Once Paulo writes his "Capital Lease" article, it will be funny to see any bullish argument.

    Dec 9, 2014. 11:23 AM | 3 Likes Like |Link to Comment
  • Amazon Admits The Era Of 'Price Sells Cloud' Is Ending [View article]



    Dec 9, 2014. 11:11 AM | 2 Likes Like |Link to Comment
  • Amazon Admits The Era Of 'Price Sells Cloud' Is Ending [View article]

    Paulo has already said a good deal of what I would say.

    But I will add to what Paulo said; I think Amazon's biggest problem in the cloud are MicroSoft and Google's balance sheets. In a price war, where no one usually wins, Amazon will definitely lose.

    Think of it this way. In NYC within blocks there are a bunch of great deli's all selling great pastrami sandwiches. And somehow the prices are all close to each other. At lunchtime and dinner time all the delis are packed but other times you can get a seat. Let us say one of the deli's started a price war. It would be silly, but the only reason they would do it would be to put one or two of the other deli's out of business. And the winner would be the deli that had enough cash to win the price war.

    As Paulo said and I agree, the cloud price cuts were the primary catalyst for Amazon's poor Q2 and incredibly poor Q3 losses. Plus I think these cloud price cuts are structural and will continue quarter after quarter.

    There is a company in San Francisco called Gigacom that is following the cloud big time. They did separate 18 minute interviews with each cloud head from Amazon, Google and MicriSoft. All 3 men were incredibly the interviews. You were correct in saying the cloud would be huge.

    The only problem is both MicroSoft and Google each have about $50 billion more of cash to lose in the cloud.

    Dec 9, 2014. 10:08 AM | 13 Likes Like |Link to Comment
  • Unraveling The Amazon Puzzle [View article]

    You said:

    <<<margins are now structurally lower on account of many irreversible shifts, the biggest of which was the sales mix shift from Media to EGM>>>

    Since early 2012 Amazon went from collecting sales on about 12% of U.S. sales to 73% today. I used about a 6.5% sales tax figure on that 60% increase after subtracting AWS and International. I figured this was worth about between 2 to 2.5% of the $90 billion in revenue. Then I tried to calculate a % for the price matching (1.5% to 2%). I don't know if your shift above trumps those two numbers?

    But moving on to another issue, I think the capital lease accounting is going to trump everything because I think the capital lease accounting was the primary catalyst for the $6 billion in new debt last week. Plus all re-organizations are the result of a liquidity issue, and I see a liquidity issue here.

    So since you really own Amazon on Seeking Alpha and you write better than anyone else, how about a detailed article on the capital leases with the payments due in 2015. And I would not worry about the Bulls here....they won't even understand the article.

    Dec 8, 2014. 12:20 PM | 3 Likes Like |Link to Comment