Is Amazon.com Getting Desperate To Keep Cash Flowing In?
by Dave Kranzler, Investment Research Dynamics
Amazon is desperate – its business strategy is spreading so in the end they will do a lot a businesses but not do them well. – Observation from a long-time colleague of mine
Amazon announced recently that it is introducing a restaurant delivery service in Seattle. AMZN will deliver food orders from several area restaurants to AMZN customers. The Company is offering free delivery to Prime members.
I know every city has more one existing company that specializes in restaurant delivery. Denver has at least two big ones and some smaller ones. I’m sure has Seattle more than one as well. The service is not cheap and the delivery personnel are well-paid. This is a cash flow losing proposition for AMZN for as long as it offers free delivery to Prime member.
The catch here is obvious: AMZN is trying to more Prime members who will pay $99/year upfront to reap the benefits – benefits Amazon admits to losing ten-figures on annually – that’s a couple billion dollars. There’s also a 30-day free trial, which is great because you take advantage of the freebies – freebies which cost AMZN cash flow – when you know you want to buy a lot of products and then cancel.
“But I Thought Jeff Bezos Says That Amazon Produces Free Cash Flow”
AMZN has now implemented several “gimmicks” in the past year in order to generate cash flow into the Company. We know that AMZN has raised $9 billion over the last three years by issuing junk bonds. It has been furiously burning through that cash. In fact, AMZN raised $6 billion in early December, 2014 and has already burned through $4.3 billion of that through June 30, 2015.
My AMAZON dot CON report shows in excruciating detail how and why this has occurred, despite all of the Company and financial media fanfare touting a highly misleading “free cash flow” number. AMZN is literally bleeding negative cash flow.
I also show in fine detail – with guidance from a tech industry CPA who was tipped by an insider – how AMZN exploits GAAP accounting rules in order to hide the true cash expense of employment compensation. This one could ultimately be the trigger that cripples AMZN financially OR cripples existing shareholders with a flood of equity dilution.
Finally, AMZN will be hit the rapid slow-down in consumer spending. We’re already seeing a general decline in the revenues being generated by most companies in the S&P 500. Now it looks like consumer spending is going to take a hit. Per this Zerohedge report, Bank of America is reporting that its internal data, which tracks aggregate spending on credit and debit cards, is showing that consumer spending dropped again in August (what happened to back-to-school spending?). From Zerohedge:
As BofA notes, “there was broad weakness in retail sales ex-autos and gas spending growth across metropolitan areas, with seven of the ten largest MSAs showing a monthly decline. The biggest monthly decline was in Dallas, followed by Miami and San Francisco. Both Dallas and San Francisco have experienced strong growth over the prior six months, showing a solid recent trend.”
AMZN will not be immune to this broad-based slowdown in consumer spending. It also appears to be hitting what have been some of the hottest housing markets in the country.
While the path that AMZN’s stock takes in the short is highly unpredictable given that that it’s a big part of hedge fund algos, which follow the momentum being generated everytime the Fed halts trading in order to interfere with impending stock market sell-offs, I can assure you that AMZN is one of the most insanely overvalued stocks in the S&P 500.
My report on AMZN shows in detail why this is the case and why AMZN’s business model will eventually fail. It won’t hurt Jeff Bezos at all, because he’s milked the stock market for billions over the years with his Ponzi web of unprofitable businesses masked by highly misleading accounting and, perhaps, an unprecedented level of stock promotion hype from Wall Street drones and mindless financial media talking-heads (“meat with mouths”).
You can click on the link above or the pic to the right for access to my report: