Summary: For what it costs to own Amazon, can buy 15 companies in a diverse range of industries. Amazon had about $1.5 billion of FCF and sales of about $37 billion. This collection of 15 companies generates $7 billion of FCF on revenue of over $230 billion. It will take Amazon seven years of 30% FCF growth to generate the same cash flows annually. Paying 1.25x tangible book value for these 15 businesses as opposed to Amazon's 15x tangible book value.
Four Banks: Fox Chase Bancorp (FXCB) with 11 branches in Pennsylvania. Renasant (RNST) with 62 offices in the Mississippi, Tennessee and Alabama First Interstate Bank (FIBK) and its 72 branches in Montana, Wyoming and South Dakota Capitol Federal Financial (CFFN) and its 42 branches in Kansas and Missouri
Three "addictive lifestyle" stocks: Calloway Golf (ELY) West Marine (WMAR) and Cabela's (CAB)
Two Insurance Cos: Hartford Financial Services Group (HIG) Transatlantic Holdings (TRH)
Three grocery businesses Safeway (SWY) with its 1,700 stores Kroger (KR) which has 2,400 locations Winn Dixie (WINN) 500 locations
Three Tech: Micron Technology (MU) for $10 billion Symantec (SYMC) for $15 billion Sprint (S) for $17 billion
Major issue is that this projected cash flow is NOT distributable to shareholders until its converted into earnings - which is crux of the problem as margins head lower with no plan to reverse course. Amazon's cost structure has been an issue since they formed the company.
The cost of doing business is higher than traditional retail due to higher labor costs associated with paying engineers to build and maintain IT infrastructure, website optimization plus costs of warehousing and shipping and ad in poor pricing discipline and you have a recipe for a looser.
This company is a paper tiger and Tim's analysis is spot on.
I wouldn't be surprised to see AMZN loose money in 2012 as margins will continue to face pressure due to rising inputs costs associated energy and pricing algorithms designed to offer lowest price in every category regardless of cost of goods sold.