billy bob

Three Reasons Amazon Should Double Revenue Within Four Years - Goldman

Did you know or understand that FCF is NOT EARNINGS, you mentioned, quoted below, That they will get better terms and that will increase their "FCF". So you are saying that this delay in payments (it increases cash and A/Ps) to suppliers is meaningful??

The only real advantage to increased "FCF" in that manner is that AMZN will make interest on the float, on the cash paid by customers in one quarter paid to supplier in the next Q. The interest income is small compared to their valuation.

They are valued at about $34 bn, have a PE of over 65 and earned $1.5bn in 6 years, WHICH IS NOTHING FOR A $34bn company.



"...Trading at around 20X 2009E free cash flow, Goldman believes Amazon stock can outperform on rising revenue if margins are only flat; rapid revenue growth assists free cash flow because Amazon uses its improving category share to negotiate longer payables to suppliers in categories such as books..."

Is Amazon's Free Cash Flow Overstated?

previous post this section was garbled-hope this works-

...This is an example, using Amazon’s, of why you should look at other definition in computing FCF. 2 scenarios-

(A) Using their reported December 31, 2007 year end figures and
(B) In which they worked out longer credit, delaying payments on $500ml of AP to January 2008. This had no effect on profit only the Cash In Bank and A/P increased by $500ml.

This stretching out of the payment of A/P increased Cash in Bank and by using your definition also increased FCF by $500ml, an amount that would vanish in the next quarter. Again read the actual definition of FCF above.

.........................
Earnings.................

Cash in Bk.................3.1 bn..........3.6bn

A/P......................

$ Flow from Oper’n.....1.405bn.......
- Cap Expenditures.......-.2...
“Free Cash Flow”.........$1.18bn....

The $500ml increase is meaningless and not FCF. This is why many people use the definition of FCF that starts with Net Income, including Warren Buffett, when valuing a business, etc....

Is Amazon's Free Cash Flow Overstated?

Net you do not understand the definition of FCF.

1. "FCF is what a company has left over at the end of the year - or quarter - after paying for all the salaries, bills, interest on debt, and taxes and after making capital expenditures to expand the business.”

2. “Free Cash Flow, strictly speaking, is the amount of money left over from the operations of a company that is available for distribution to owners (stockholders) of the capital employed in the company.” For a fundamental investor, this is a very important number because, if you owned this company outright, FCF is the money that you would get to withdraw for yourself.

3. "IT IS DEFINED AS CASH WITHOUT ANY RESTRICTIONS ON IT USE. It is available for any purpose at any time."

This is an example, using Amazon’s, of why you should look at other definition in computing FCF, as it can be manipulated and misinterpreted, 2 scenarios-

(A) Using their reported December 31, 2007 year end figures and

(B) In which they worked out longer credit, delaying payments on $500ml of AP to January 2008. This had no effect on profit only the Cash In Bank and A/P increased by $500ml.

This stretching out of the payment of A/P increased Cash in Bank and by using your definition also increased FCF by $500ml, an amount that would vanish in the next quarter. Again read the actual definition of FCF above.

.........................
Earning..................

Cash in Bk.................3.1 bn..........3.6bn

A/P......................

$ Flow from Oper’n.....1.405bn.......
- Cap Expenditures.......-.2...
“Free Cash Flow”.........$1.18bn....

The $500ml increase is meaningless and not FCF. This is why many people use the definition of FCF that starts with Net Income, including Warren Buffett, when valuing a business, etc.

free cash flow
1. Definition
Operating cash flows (net income plus amortization and depreciation) minus capital expenditures and dividends. Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments.
www.investorwords.com/...

What is Free Cash Flow?
Free cash flow is simply a measure of the ability of a company to generate internal growth. This is sometimes referred to as organic growth.
How is Free Cash Flow Calculated?
Free cash flow is calculated by adding net income with depreciation and deferred taxes and then subtracting dividends paid and capital expenditures.
Net Income + Depreciation + Deferred Taxes - Dividends Paid- Capital Expenditures = Free Cash Flow
dividendmoney.com/free.../

Free Cash Flow
Similar to earnings, but omitting purely "paper only" expenses, and accounting for capital spending when it actually occurs rather than depreciating it over many years.
The real difference between earnings and free cash flow is that depreciation accounts for sunk costs of the past; free cash flow is meant to capture all real cash outlays of the present.
www.moneychimp.com/glo...

How Are Apple and RIM Moving Up?; Sandisk's Flash of the Future

Shlomi

Nice comments, but you seem to be ignoring Valuation, is 1999 back?

Why no comments on valuation? There is a difference between a good company, a good product and a Good Stock. Remember Cisco (and many other great companies) in 1999-2000 analysts thought it would double, but instead it dropped 80% and never came back-Bubble Valuation like RIM.

RIM presently has sales of $5 bn, a Valuation of $62 bn, valued at over 12 times annual sales and p/e ratio 58.

Even if sales double (doubtful) to $10 bn and profits double the stock will still be overvalued. Sales for the next Qtr are only projected to increase $200ml, a long way from a double.