Tag Archives: cloud-computing

Amazon Prime Day! What Does This Mean?

Amazon stock is up $6 in pre-market trading because it’s…”Prime Day!”  But what does this really mean?  It means AMZN will burn more cash selling and fulfilling commodity products with free 2-day shipping. But it will likely get another $20 pop in its stock because “Prime Day” revenues today will grow X% over 2016’s “Prime Day.”

Am I the only person in the world who has figured out that AMZN’s e-commerce operating income margin is nearly zero?  Does anyone besides me know that AMZN’s non-North American e-commerce business loses money on an operating basis?  The numbers are posted in its 10-Q every quarter.   North America and ROW combined last quarter AMZN’s e-commerce business did a whopping 0.3% operating margin.  At least that’s 0.3 higher than Blutarsky’s grade point average in “Animal House.”  Short Seller’s Journal subscribers know this because I show them the numbers –  Wall Street’s institutional investor clients do not know this because these market “professionals” can’t be bothered with doing actual research).

AMZN has already been crowned as the new “grocery killer” by the Jim Cramers of the world.  It’s amazing that he can make this assertion without having ever looked at AMZN’s real numbers.  In fitting irony, the opposite of Cramer’s assertion is the truth based on real world numbers.  Walmart, Target, Bed Bath etc have 3-5% operating margins that they can “play” with to attack AMZN’s e-commerce model.

Is AMZN “killing” brick-n-mortar or are the healthy brick-n-mortars going after AMZN’s e-commerce business?

Go onto Walmart’s website.  It’s now offering 2-day free shipping on millions of SKU’s without any requirement to pay money up front to join a “club.”  I was wondering by Bezos decided to offer low-income people a big discount on Prime memberships.  He knew Walmart was going to offer 2-day free shipping to that retail demographic without a “club membership” requirement.  Guess what Jeff?  WMT can afford to ship for free.  Your company cannot.  It doesn’t cost much extra for WMT to offer 2-day shipping because it can fulfill most orders from store inventory in the same county or city or neighborhood from which the order was placed.  AMZN can not do that.

Walmart is more than 3x the size of AMZN and it is many times more profitable.  BBBY’s e-commerce business last quarter grew 20% year over year.   I got news for  Cramer and all the robotic Wall St. analysts, and the lemmings who slavishly worship both:   Walmart, Best Buy,  BBBY and TGT have room to subsidize sales even more and still operate profitably.  AMZN does not.  If you don’t believe me then look at the SEC-filed number yourself.

Stay tuned…there’s more…two major category-killer discount grocery chains from Europe are expanding aggressively in the United States and Microsoft is cutting back on certain of its operations to focus on its cloud enterprise business.  AMZN’s AWS business will be attacked aggressively by MSFT, ORCL, GOOG and IBM.  The price of cloud computing will eventually approach zero.  Did anyone out there realize that AMZN’s cloud margins decline every quarter?

Happy Amazon Prime Day!  AMZN will lose money on just about every item sold today.  I guess that’s a great reason to celebrate…

Why I Just Shorted IBM

IBM stock has spiked up Friday, yesterday and today because the Company released Q4 and full year earnings which “beat” the Street estimates  – by design and by the heavy application of GAAP earnings management.

But here’s the facts:   1)  Revenues year over year for the full year dropped 5.9%;  quarter over quarter they dropped 1.3% ; this was the 5th year in a row of annual declines and the 19th quarter in a row of year over year quarterly declines; 2) gross and operating margins continue to shrink;  pre-tax earnings (this is important) plunged, literally plunged, 22.7% for 2016 vs. 2015;  3) long term debt increased 3.5% year over year – it was 43.4% of revenues in at the end of 2016 vs. 40.8% of revenues at the end of 2015;  4) cash generated by operations (from the statement of cash flows) plunged 49.3% in Q4 2016 vs. Q4 2015 – it dropped 2.3% for the full year (see below for significance);  5) despite the heavy application fo GAAP management, net income dropped 10% in 2016, with a small quarter over quarter net income gain of 1%, which would have been a decline if IBM had not applied subjective GAAP manipulations.

With regard to IBM’s liberal application of GAAP earnings management techniques, the Company arbitrarily applied a 9.6% “effective” tax rate in Q4 2016 vs. the 12.5% utilized in Q4 2015.  The Company claimed a 3.6% GAAP tax rate for 2016 vs. 16.2% in 2015.   Manipulating the “effective” GAAP tax rate is the very first lesson taught in any high quality forensics accounting class.  I give IBM an A+ for its maneuvers in this regard.   But the “devil in the details” and fact that the cash generated from operations plunged 49% quarter over quarter should raise a huge red flag for any financial analyst (Wall Street pimps of course will turn a blind eye to that glaring financial “tumor”).

The stock popped today on IBM’s announcement that hit would hire 25,000 people in the U.S. in an obvious maneuver to avoid the stock-deadly “Trump tweet.”  However, the Company has continued to maintain on analyst conference calls that the hiring is part of its normal operations and should not be differentiated from its cost-cutting layoff plans.  But the hedge fund algos only care about the 25k hiring headlines.

Interestingly, IBM heavily promoted the success of its cloud business and artificial intelligence business, the revenues from which increased 13% in 2016.  But this business can not be very profitable, otherwise IBM’s gross, operating and pre-tax net margins would not have dropped.  This achievement is less than dubious.

Additionally, 20% of IBM’s revenues are derived from its global business services unit.  As Trump escalates the trade war with the rest of the world, specifically China/Asia, this unit’s revenues, which dropped 4.1% quarter over quarter, will get hit even harder.

IBM is an American corporate dinosaur that is dying a slow, painful death from terminal business cancer.  The Company has done well to survive this long.  Amazon and Oracle have ignited a pricing war in the cloud space that will eat IBM’s cloud business alive.    The cloud business is quickly become a highly commoditized product with no limit to capacity constraints and almost zero pricing power or real product differentiation. It’s quite similar to the fiber optic business that soared then crashed and burned last decade.

IBM’s current legacy, like most large corporations – US corporate debt has tripled since 2006 and is at record levels – is issuing debt to buy-back shares and skimp on payments into its pension in order to generate GAAP net income.   It’s an American tragedy in the making.    The stock market is historically overvalued now and is set up for a big sell-off, which I believe will occur this year.  While the Dow and SPX have been flirting with record all-time highs, IBM sits 18.6% below its all-time high reached in 2013.   It was IBM’s turn to be used as prop for today’s Dow rally, as IBM has been one of biggest contributors to today’s Dow gains.  As I’ve shown above, there has been zero fundamental factors behind IBM’s stock move over the last three days.

This is the type of analysis that accompanies my weekly Short Seller’s Journal.  If you would like to try it, you can subscribe using this link:  Short Seller’s Journal subscription. I provide my own market analysis in which I remove “alternative facts” from the weekly economic reports.  I also provide short-sell ideas, including suggestions for using options.

 

AMAZON.CON – ROFLMAO

If this is the case, the true reality beneath Bezo’s fraudulent accounting had to have been horrific:

Amazon’s quarterly profit misses estimates, shares tumble

From Reuters – LINK:  

Amazon.com Inc reported a lower-than-expected quarterly profit on Thursday as expenses rose and the company provided a disappointing fourth-quarter revenue forecast.

The growth of AMZN’s cloud business is rapidly slowing down.  This has been one of my key arguments about the insanity of the market cap attributed to AMZN’s cloud business. It’s tiny compared to AMZN’s overall revenues.  And competition in the cloud space is going to become ferocious as Microsoft, Google and Oracle begin to really flex their muscles.

The only question left for me is to determine which between AMZN and TSLA is biggest Ponzi scheme in history.  AMZN is maybe a $10 stock and TSLA is likely worth $2.

AMZN: The World’s Greatest Ponzi Show – Find Out Why

Dave  was brilliant in his 25 page Amazon.dot.con report detailing the financial manipulation at the hand of Jeff Bezos. His investigative mind and tenacity in digging further for the truth has exposed Amazon’s/Jeff Bezos’ fraudulent activities to the public. Dave has a unique way of explaining every aspect of each graph, photo and financial statement throughout his report that anyone without the experience in the field can comprehend.  – “Kim” in Connecticut

AMAZON dot CON – the price is going up after tomorrow.

The Wall Street Journal in an article on AMZN’s “transparency” reports that, “In the case of Amazon, the company finally broke out details showing that its AWS business is now generating about $6 billion a year in revenue with operating margins of 21%—far above the 5% margin seen in its North American retail business.

Yet AWS is still projected to account for less than 10% of Amazon’s total revenue this year and next. Amazon, meanwhile, now trades at more than 150 times forward earnings.   Here’s the link:  WSJ

Of course, I would never expect a financial media journalist to understand accounting and finance.  Why should they?  Their job is to regurgitate the pig vomit served up to them by the Wall Street firms that buy expensive advertising in their publications.

AMZN in fact revealed very little about its AWS “cloud computing” business other than showing us revenues and a rigged operating income number.  My research report explains why the operating income number attributed to AWS is not only highly misleading but the source of revenues fueling the growth of AWS is of very low quality.   And AWS is A LOT less than 10% of AMZN’s total revenues.

Furthermore, that “150 times forward earnings” number is a complete fabrication of Wall Street hockey puck projections.  AMZN has lost money on a net income basis in two of the last three years and, nothwithstanding the temporary boost to operating income from AWS, will continue to absolutely bleed cash.   It’s burned through $4 billion in cash in just the first six months of 2015.

My report goes into a level of in-depth analysis that will never be published by Wall Street or the financial media.  You can access my report here:    AMAZON dot CON

The price of this report is going up after tomorrow.

AMZN

 

AMAZON dot CON: The Con Job Strikes Again

Regarding AMZN AWS Services business:   Another thing that will pummel them simultaneously is analogous to what happened to Sun Microsystems which I remember my CTO predicting before they crashed. Sun Microsystems stock was on a tear during the tech bubble but they sold a ton of equipment to venture backed startups. As that unwound, there stock was destroyed. –  see below

Note:  I see David Stockman agrees with my analysis – AMZN bubble  – I will have more on this later but he takes AMZN’s reported Free Cash Flow as given.  The FCF number is highly misleading and I show my equity report why this is the case – and AMZN even admits in so many words in the footnotes of its SEC-filed financials that the FCF presentation is misleading.

I watched in sheer horror as Amazon’s stock price soared straight up 80 points after it released its Q2 earnings today, up 17% from its NYSE closing price.  CEO Jeff Bezos’ net worth jumped $7 billion after his highly misleading earnings announcement.

The headlines reported that AMZN’s sales were up 20% year over year for Q2 and that net income had swung from a loss of $123mm to a profit of $92 million yr/yr for Q2.  While those numbers are what they are, sales growth from Q1 to Q2 was a mere 2.9% – pretty much in-line with the rate of inflation.

The media propagandists attributed AMZN’s highly “surprising” quarter to big gains in its AWS business segment, which is its cloud-computing business.  However, if we drill down into the numbers made available in its 8-K, we find that the AWS segment represents just 7.7% of AMZN’s revenue stream vs. 6.6% of revenues in Q1.   Sure seems like a lot of manic hype over well less than 10% of AMZN’s business model.

As it turns out, AMZN’s AWS business model, like everything else it does, is seeded in low quality sources of revenue that will ultimately prove to be unsustainable.  Why?  See this comment sent to me by someone who read my Amazon research report and who used to specialize in high tech accounting for Silicon Valley start-ups:

I audited many of the high fliers that crashed and burned, took companies public & was at the printers the day the bubble really burst which ultimately tabled that IPO…Amazon Web Services is growing by leaps and bounds and a significant amount of those $’s are coming from venture backed start-ups. Almost the entire Silicon Valley and other startups outside the Valley use AWS. Venture backed startups have exploded just as AWS revenues have exploded…That segment of their business will get walloped which right now seems to be a main source of their operating income.

As many of you are aware, private equity capital has fueled an unprecedented tech bubble in Silicon Valley.  Companies with no revenue are infused with printed money at multi-billion capitalization rates – hundreds of them.  They all use cloud-computing services provided by companies like AMZN because it’s so cheap relative to building and maintaining an independent, secure system of servers and storage, which is what large established companies do for obvious reasons. Most of these companies spending money on services like AMZN’s AWS segment will eventually flame out.  It may not happen until the stock market bubble bursts, but it will happen.  And AMZN’s over-hyped business segment representing less than 10% of its revenue stream will flame out.

I have a lot more work to do drilling down into AMZN’s financials in order to wipe away the brown stuff flying at us from Wall Street and Bezos.  I need to wait for the Company’s 10-Q in order to do that.  I will be producing an update to my research report that will be made available to anyone who has previously purchased the report.

After the update is released, the price of the report will be raised for new buyers.  This is because the report will contain some significant analytic enhancements, a couple of which were made aware to me by the accounting professional above.  It’s significant accounting manipulation that is well-disguised. You can access the original report here:  AMAZONdotCON.

But for now, here’s a few financial facts from AMZN’s quarter which show that AMZN’s headline numbers were misleading and much more hype than substance:    AMZN’s cash has dropped $4.3 billion, or 30% since 12/31/14;  while AMZN is touting its “non-GAAP free cash flow” metric, actual cash provided by operations per the cash flow statement in the 8-K was significantly lower at $1.9 billion;  AMZN’s cash interest paid on long term debt increased 490% yr/yr for Q2, from $31 million in Q2 2014 to $152 million in Q2 2015 (didn’t hear Bezos mention that today…);   AMZN’s SG&A expense increased 26% yr/yr for Q2 – at a greater rate than sales growth (my bet is they moved some “fulfillment” costs into SG&A in order to make it appear as if the cost of fulfillment decreased as a % of revenues.

There are a several other ways in which AMZN uses highly misleading accounting techniques to dress up its GAAP financial presentation.  As I detail in my stock report – AmazonDotCon – the  most absurd and misleading metric AMZN touts is its “free cash flow” number.  Buried in the footnotes of its 10-K is a disclosure in which AMZN admits in so many words that the number is essentially b.s.

While the extreme market intervention by the Fed and the U.S. Treasury’s Exchange Stabilization Fund have made it extremely hazardous to short ANY stock right now, the flip-side is that they have blown a stock market bubble that is bigger than any previous bubble in the history of this country.  While it’s impossible to time the top, fortunes will be made by people who can position themselves short in stocks like AMZN ahead of the drop that’s eventually going to hit our system.

bezos_laughingFrom January 1999 to the bottom of the tech crash, AMZN dropped from $113 to $5.51 – a 95% drop.  We can expect an eventual plunge of similar magnitude this time around.  I am certain of that.  The only question is timing.AMZN_PIC