Q4 cash flow should place current ratio just above 1 by end of Q4 from 0.89 today. But, the large neg cash cycle of Q1 (should be about $-3.5B) will overwhelm the $2B line of credit they have, and require them to line up more debt soon.
So, the banks that want the business are out marketing the stock with AMZN to raise demand for the debt - hence the big run.
Except that ALL costs continue to rise as a % of revenue.
Shipping, Fulfillment, Marketing, G&A and Tech&Content. Not some, ALL up over past several years with revenue. That is why the stock is down 20% this year, as there has been no economies of scale even at $100B in revs. This has been the disappointment - it should have happened by now.
Nice deflection - but I'll tell you if you actually do the math, it is impossible to get above 1.5% net margin. Their capex spending is all opex .. it is servers for AWS, software development for the website and content for prime. They can't cut R&D as it is all depreciation of the capex for AWS. Plus how many companies have you seen cut R&D and grow? Let's see them raise price ... they sell commodity products with huge elasticity. If you can find it on another website cheaper, you buy it there.
I have done the math over and over and cannot get to over 1 or 1.5% net margin best case. So, on $125B in sales in 2016, that is ~ $1.5B in net profit for a company worth $140B in 2014 .. one that is growing at 15% at best at that point.
Show me the math from gross margin down as a % of revs to get to 3% or more net margin. All of their costs (shipping, fulfillment, marketing, tech & content, G&A) are based on leases and/or directly connected to revenue growth and can't be reduced as a % of sales. Don't forget about interest expense and taxes .. plus all of that dilution from paying employees with stock.
Stock is flat to pre-earnings, after a complete reset by AMZN mgt and the exit by the CFO. 2015 sales growth cut from 21% to 18%, and EPS cut by 52% (from 1.92 to 0.92), and an extra $2B in debt needed to support working capital shortfall. I knew the earnings drop wouldn't make a difference, but the big cut back in growth and lack of cash I thought would.
It really looks like this stock will only drop if they go into bankruptcy.
It didn't work out this time .. untypical Monday move after a strong option Friday move right to max pain. It works about 80% of the time .. not this time.
That's what make a market - you see opportunity, where I see a failed promise over many years. The question is, what are you willing to pay for the potential for future profits? You have to admit it is a risky bet. At $300, beyond perfection is already priced in.
So what makes you invest in AMZN? Is it Free cash flow? that is down for the past 5 years to almost nothing now. Is the strong balance sheet? Oh right, their current ratio is 0.86. Maybe its the massive growth ... ouch only a mid-teens grower now. Or maybe the pricing power? oh right, no margins. Maybe AWS ... well, AWS growth has been cut in half by the huge price cuts driven by comp from Google, Microsoft, etc... or maybe its because of the great Fire branded tablets and phones, which combined has less than 2% market share .. with no sign of profits or cash flow and a newly minted $5B in debt (plus the massive stock dilution from all of those options and RSU's) ..this stock is headed way, way down over the next few years.
Water always finds its level.
footballkid - I have been tracking the weekly options on AMZN for a long time. There was too much action at $300 coming into today to not know there would be some type of manipulation. You'll see I'm on right on Monday, when it gives up today's gains. This is accurate nearly 80% of time on this stock. $300 is only a round number because it is a key option strike price this week.
CY2015 P/E ... 318. They usually hover around 100 fwd, but this time analysts really brought down next year earnings.
they are headed for another big fall .. back to shorting on Monday!
AMZN was an easy buy this morning, with the open interest at $300. Now in the afternoon, they are going for the kill pushing it over $300. This stock is a pure gamble and has nothing to do with fundamentals when it is clear from earnings call.
Dude - analyst 2015 earnings estimates were brought down by 25%, so the 26% was completely justified. The company is now trading at a higher multiple than it was pre-earnings (on lower growth projections). This will settle back down once the Cuban effect subsides in a day or two.
R&D is mgt discretionary expense??? For any company that is laughable statement, but for AMZN it flatly not true. Almost all R&D $ by AMZN are operating expenses. All AWS operating expenses and all capitalized software (i.e website expenses) are in R&D. That is why GM is high for AMZN and operating margin is so low - their operating expenses are below the line (in fulfillment and R&D).
Have you noticed that R&D spending growth follows "Other" revenue growth almost perfectly?
The Y/Y comparison is no good, as 1 yr ago 3P sales were held back by the e-book accounting change which moved 3P to 1P at 12x the size (but same profit). The market has reacted wrong to this over past 2 reports, as 1P sales will suffer for Y/Y - which means overall revenue will be pressured (even though 3P sales look healthy). 3Q report will be rude awakening for those that don't get this.
So, the same accounting change that pumped AMZN revenue over past 4-6 Q's will now start to hurt their growth (all the while not changing profits).
We shall see .... time has proven me right so far .. 4 years of investments and counting, and still no return. + $3B of new debt w/ a current ratio