Tag Archives: Jeff Bezos

Amazon.com: Has The Bubble Finally Popped?

It’s good to no longer be a lone voice in the wilderness.  This latest commentary on the insane overvaluation of Amazon stock comes from Bill Bonner of Agora Research by way of the Acting Man blog:

Every AMZN bear has been made to look like an idiot – but that may soon change. As David Stockman recently pointed out, those who actually take the time to properly analyze its slippery accounting and business model (not the dead fish employed by the sell-side, obviously) cannot help but conclude that it is a giant Ponzi scheme – and the danger that this realization will penetrate the “market mind” is increasing. It remains a “river of no returns” – although consumers have every reason to love it. Investors buying it today pay 830 times net earnings for the stock – and said net earnings actually look somewhat dubious upon closer inspection.

Interestingly, a lot of AMZN critics still insist on describing AMZN as company that generates “cash flow.”  But, as my AMAZON dot CON report details, the metric being describe as “cash flow” comes from Bezos’ own quarterly earnings presentations in which he references “free cash flow.”

For those of us who bother to scour the footnotes of AMZN’s SEC filings, we find that AMZN discloses that its “free cash flow” metric does not conform to GAAP accounting standards. But I take that disclosure in my report and show, with details from AMZN’s financials, why the term “free” in reference to “cash flow” is highly misleading.  In fact, over the last two years the cash used by AMZN to “invest” in its business model has come largely from debt issuance and from gift card and Prime membership deposits.

Amazon Prime?  Bezos admitted about a year ago that Prime loses a couple billion, a fact confirmed by one analyst in July but ignored by everyone:  LINK.  The idea behind Bezos’ strategy is to do whatever it takes to generate sales growth.  The stock price soars when it looks like AMZN is growing rapidly.   However, as my report details with direct evidence from the financials, revenue growth is required in order for AMZN to pay its expenses.  In other words, the only way AMZN stays afloat is if “cash in” exceeds “cash out.”  That’s the definition of a Ponzi scheme.  AND, as a matter of fact, as I show in my report, AMZN has stretched out its accounts payables over the last few years.  This is a trick companies use in order to slow down the rate at which they pay their bills.  If revenues begin to decline, AMZN will hit the wall – quickly.

As I state in the introduction sent to new subscribers of my Short Seller’s Journal, it is impossible to time the top in AMZN.  But once it rolls over, it will drop quickly.   You might miss the move from $600 to $400, you can ride it from $400 to $100 or lower.  AMZN ran from $300 to almost $700 in less than a year.  It can easily complete that roundtrip in even less time.

There’s probably a core level of operations that can be a profitable business. But it is nowhere near the level that generates the current $100 billion of revenue.  AMZN spends at least $1 to generate every $1 of revenue.  That core level of potential profitability would likely imply a fundamental value per share well below $50.

I would not necessarily rush out and short AMZN right now.  It will probably start to move higher into its earnings report on January 28 (after the market close).  I have a feeling that Bezos will pull out all the stops to manufacture an earnings report that beats consensus estimates and the stock will gap up again as all the hedge funds that piled in short this week scramble to cover.  THAT is when you want to start pulling the trigger on shorting the stock.  My AMAZON dot CON report will help you prepare for that.

David Stockman: Amazon And The Fantastic FANGs…

A Bubblicious Breakfast Of Unicorns And Slippery Accounting

Consider the case of Amazon. Its PE multiple on LTM net income of $328 million has dropped from 985X all the way to…….well, 829X! Likewise, it’s now valued at 97X its $2.8 billion of LTM free cash flow compared to 117X at year end.  In the same vein, Facebook’s LTM multiple on net income has dropped from 108X to 96X.

So the reason to revisit the FANGs, and the Amazon bubble in particular, is not because their market caps have come down to earth; it’s because once you get inside, another characteristic of late stage bubbles comes lurking front and center. Namely, the tendency for the accounting income of momo tech stocks at bubble tops to be bloated with non-sustainable revenues and profits from Silicon Valley burn babies…

…I was reminded of this possibility by an excellent post by Dave Kranzler at Investment Research Dynamics. In a piece called “AMAZON dot CON” he took me to task for being too kind to Jeff Bezos’s ponzi accounting.  Among other things, Kranzler went all the way back to the beginning and offered an even more dramatic juxtaposition of the bubble in the stock versus the reality on the ground:

Throughout its 25-year history as a public stock, AMZN has delivered a cumulative total of $1.9 billion in net income to shareholders. Jeff Bezos made $16 billion on AMZN stock in 2014.

You can read the rest of Stockman’s commentary on AMZN here:  Amazon And The Fantastic Fangs

More On The Amazon Spin-Machine

Jeff Bezos’ greatest business trick is his ability to spin the illusion that AMZN is a money-making machine.  In fact, AMZN is remarkable  sales-generating machine,but it costs the Company more than a dollar to generate a dollar of sales.Bezos1

All of a sudden in 2015 AMZN had become a cloud computing services phenomenon.  The last two earnings report showed a rate of growth in its AWS business and the stock rocketed higher.  Of course no one seemed to care that outright the AWS business represents less than 10% of AMZN’s total revenues.  And of course nothing is ever mentioned about the quality of AMZN’s AWS-derived sales.

The truth is, and Bezos never discusses this, that the majority of AMZN’s AWS contract revenue comes from Silicon Valley unicorns.  Most, and maybe all, of them will not be around in a few years.  Here’s an accounting of this from someone besides me:

I would like to introduce a meme before the sell side or buy side catches on.  As you know AMZN was up 100% this year as Bezos revealed the AWS business to the world.  The meme is this: AWS growth is unsustainable.  Not only is it unsustainable I predict that the sell side forward revenue growth rate for AWS will  go to zero or negative by Christmas next year.   It has come to my attention that 50% of AWS growth comes from start ups and my guess is that the majority of those dollars are Unicorns.  AMZN has been an indirect beneficiary of QE largess.  The Fed’s easy money created a bubble in VC funded start ups.  That funding peaked this year and is now in decline as the Unicorn bubble is bursting.  I expect this bubble to unravel fast as we are in the part of the cycle where the capital markets shut down for companies burning cash.  –  AMZN:  The Ghost Of XMAS Yet To Come

My AMAZON dot CON report goes into further detail about the problems with Amazon’s AWS business modelAMZNnew and why, at some point, the market value being assigned to the part of AMZN’s business model will likely largely evaporate this year.

AMAZON dot CON

Any question about the role Amazon stock plays in helping the Fed/US Government prop up the S&P 500?Untitled2

The more time I spend researching and observing AMZN, the more I”m convinced that it’s the biggest Ponzi scheme in the history of the stock market.

Throughout its 25-year history as a public stock, AMZN has delivered a cumulative total of $1.9 billion in net income to shareholders. Jeff Bezos made $16 billion on AMZN stock in 2014. Here’s the details:  Bezos’ Ponzi Scheme

Here’s what’s behind Bezos’ drive to transfer as much money from the stock market to his bank account: Bezos Has Amassed A $59 Billion Fortune – And Wants More. If you read through that article you’ll get a sense of what drives Bezos and how he operates.

Amazon is a Ponzi scheme in the sense that its business model requires sales growth every quarter in order to generate enough cash flowing in to the Company to enable it to pay the cash expenses flowing out of the Company.  This is one of the reasons AMZN is constantly running Prime membership 1st-year fee deals.  It needs the cash it receives upfront in order to help it fund cash payment Untitledexpense obligations.   The graph to the right shows one of AMZN’s basic problems.  AMZN offers free two-day shipping to Prime members.   Its cost of shipping eats up an increasing percentage of its sales revenues.   AMZN hides a lot of its expenses by making liberal use of the increasingly “grey” areas of GAAP accounting rules.  But you would never know this unless you dig deeply into the murky abyss of the footnotes to its financials.

The genius of Bezos is his ability bamboozle big investors and retail chimps into piling into his stock every time he announces another “big” idea.  The current massive bubble embedded in the valuation of AMZN’s stock is the $150 billion of AMZN’s $297 billion attributed to AMZN’s cloud  computing services business, “AWS.”   This is a business that represents about 7% of AMZN’s revenues.    That $150 billion is  21-times AWS’ trailing twelve month revenues and about 150-times  AWS’ trailing twelve month operating income.  Insane valuation multiples.

David Stockman published a piece last week which discusses the degree to which AMZN is an epic stock bubble.  However, even he is bamboozled by AMZN’s numbers. He gives AMZN credit for spending $11.6 billion on R&D.   This is what Bezos wants the market to believe.  Tech companies get a lot of stock market “cred” for showing high R&D “investment.”   But the $11.6 billion AMZN spends is not R&D.   Market professionals like Stockman are getting this “R&D” number from an expense line item in AMZN’s income statement called “Technology and Content.”  They automatically assume that number is R&D’s expense.  But it’s not. I like to dig into the bowels of 10Q and 10K filings and kill the market with truth.   This is from the footnotes to AMZN’s SEC-filed financials:

Costs to operate our AWS segment are primarily classified as “Technology and content.” Technology infrastructure costs consist of servers, networking equipment, and data center related depreciation, rent, utilities, and payroll expenses. These costs are allocated to segments based on usage. During Q3 2015, we expanded our technology infrastructure principally by increasing our capacity for AWS service offerings globally.

What analysts like Stockman assume to be R&D spending are, in truth, mostly the expense of operating AMZN’s website and its AWS business operations.  I detail this in my AMAZON dot CON report. In other words, AMZN is getting $10’s of billions of stock market love based on the idea that it is pouring billions into R&D – R&D that is in reality nothing more than standard operating expenses.

David Stockman and everyone else also use in their analysis the number that AMZN reports as “free cash flow.”  But I show in detail, based on using information that is found by digging through the footnotes in AMZN’s SEC-filed financials and by applying a deep understanding of GAAP accounting, that AMZN’s true cash flow is not even remotely close to the number used and reported by analysts and critics in their reports.  Again, my report is available here:  AMAZON dot CON.

As for the quality of revenues and operating income at AMZN’s cloud business, most of AMZN’s contracts are with Silicon Valley start-ups, most of which will not be around very long.  Moreover, the pricing for cloud computing services has undergone extreme price compression from competitive pressures. Here’s an anecdote from a contact of mine who runs a technology-based healthcare company:

Here’s a funny fact on AWS [Amazon Web Services] that again everyone seems to ignore or miss. I have a company and our AWS bill is coming up for renewal and the prices have dropped 90%+ in 3 years. And yet, a hyper deflationary commodity, that is being sold in mass quantity to profit-less start-ups, is worth perhaps $150B or more of AMZN’s market cap.  Epic.

Cloud computing services is the contemporary version of fiber-optics.  Remember that business, which drove a large portion of the late 1990’s tech bubble?   Level-Three Communications (Warren Buffet), Qwest (Phil Anschutz), Global Crossing (A JP Morgan sponsored Ponzi business).   The cost of accessing fiber optic networks dropped like a rock as fiber-optic overcapacity and technological advances invaded the business model.  The same dynamic has invaded cloud computing.

Global Crossing went bankrupt and reorganized into Level Three; Qwest renamed CenturyLink is a quasi-utility phone/communications company and survived the fallout from the fiber-optic bubble but its then-CEO, Joe Nacchio, was prosecuted for insider trading and financial fraud and spent six years in prison;  Level Three still operates but it’s stock, on a split-adjusted basis, dropped from a peak of $1,769 on Jan 31, 2000 to a current price of $53.

These examples show the type of hype, fraud and malfeasance which belie extreme financial bubbles.  I am highly confident that the same type of activities are occurring behind the “curtain” at Amazon.

Clearly, from the graph above, the Fed uses AMZN as one of its props to hold up the S&P 500 in order to maintain the illusion that the economy is fine.  But at some point, just like with every bubble stock in history, the gravitational pull of fundamentals will engulf AMZN’s stock price and send it plummeting.  Perhaps this has already begun:

AMZN11

Profit From The Greed And Stupidity Of Others

History is about to repeat itself.  The tide of liquidity is slowly drifting out and this cycles frauds and scams will reveal themselves soon.  Look to companies that rely on the capital markets to fund their growth as Wall Street is a willing accomplice in looking the other way due to the fees collected.  – Enron Memories:  A Cautionary Tale

I would again urge everyone to go see “The Big Short.”  I plan on going to see it again.  The on-screen rendition is that powerful and well-acted.   It explains in “layman” terms what happened.  For those who put their thinking cap on, the movie explains why what happened is happening again – in a re-packaged form.

While everyone is focused on Amazon’s news report that it added 3 million subscribers in the 3rd of December and had record package shipments this holiday season, causing the stock to pop up despite the sell-off in the S&P 500, I am focused on the truth.  Of course AMZN had 3 million Prime subscribers right before Christmas.  Why?  AMZN was offering a one-month free trial to Prime.  If you had not shopped yet for Christmas and had 2-day free shipping dangled in front of you – for free – of course you’re going to sign up.

Let’s see the “churn and burn” rate for the people who have subscribed to the free-trial promotion.  I can guarantee you that AMZN will not publish those numbers.

Record shipping?  Economic theory teaches us that when something has no cost, demand is infinite until saturated.  I know people in NYC who bought toilet paper and paper towels from AMZN because free delivery is cheaper than taking a cab to the grocery store.  And who wants to schlep big armloads for grocery supplies around the streets of NYC?

Markets become irrationally overvalued because, in general, people have a tendency to overprice “hope” and “optimism.” It’s human nature to deny the negative side of reality. As a result, the market tends to “under-price” the probability of a negative outcome. This dynamic presents opportunity for those willing to examine the truth.  – Short Seller’s Journal

What is missed on this is that AMZN loses money on its Prime membership business.  It has admitted this.  But the push up in the stock price greatly benefits Jeff Bezos, as he automatically unloads 100,000’s of shares every month.

I will have a lot more to say about AMZN and the retail sales report out from Mastercard later this week.  I have had added a new feature to my Short Seller’s Journal called “Quick Hits,” which presents a short term, short-scalp trading idea.  The idea presented in this week’s report is down $1 (1.3%) already.  The put option suggestion is up 40%.  I believe this idea has at least another $1 of downside before Thursday’s option expiration. Click on this link to to subscribe:   SHORT SELLER’S JOURNAL.

This week’s report also presents what I believe to one of the best ways to short the corporate and mortgage bond market, especially the high yield market.

AMZN Is The Stock Market Bubble Poster Child

Don’t take it from me, this is a comment that was emailed to me this weekend:

Druckenmiller thinks AMZN can raise prices anytime it wants. But its entire business model is based on price as a competitive advantage. The service is quick delivery, easy order. Well most of hte big companies have easy order on the web.  Also easy delivery if you are willing to pay for it. So what’s the competitive advantage? AMZN has just about everything?

I use Amazon less now that they have to charge sales tax of 7% where I am and 10% in Chicago/Cook County. As we have discussed Amazon is losing that advantage.

I think there is a big issue of just what is Amazons competitive advantage? If it’s price–they have to attack a litany of companies, all with bigger and better balance sheets. That war could take a number of years. When do shareholders of AMZN wake up and see AMZN is not making money while Walmart is making money and pays a 3.3% dividend to boot?

This is what the stock chart looks like of a company that is in extreme bubble mode.  Go back and lookUntitled at the stock charts of every single tech stock at the peak of the internet/tech bubble.   Need I remind anyone that the NASDAQ plunged over 90% when that bubble popped?

AMZN is going to go out of business, but its stock price has disconnected completely from the reality of its underlying business model.  Stanley Druckenmiller erroneously and foolishly added rocket fuel to the stock move with assertions that were 100% incorrect.  My updated report stock report goes over this in detail.   AMAZON dot CON.

Click on the image to access this report.  I am going to raise the price again after AMZN reports Q4 and its 2015 full year at the end of January.

From my update and full reports:   As we’ll see, it’s apparent that Druckenmiller had not done any of his own research on the Company. He was likely belching out the smoke some Wall Street salesman blew up his ass. He for sure did not dissect Amazon’s financial statements filed with SEC.

 

Amazon dot Con Is Updated – See Why Stanley Druckenmiller Embarrassed Himself

The run-up in AMZN has been stunning to say the least.  It reminds of Commerce One (CMRC) at the peak of the tech/internet bubble.  CMRC ran from $10 to $600 in vertical fashion.  The only difference between CMRC and AMZN is that AMZN has revenues.   Both companies burn cash like a Weimar Republic furnace.

The move last week was precipitated by comments made Stanley Druckenmiller at a CNBC  investment symposium.  Druckenmiller was comparing IBM to AMZN.  Unfortunately, if you have bothered to study AMZN’s financials, you know that Druckenmiller was blowing smoke out of his ass with regard to his assertions about AMZN.  Druckenmiller’s comments begin at about the 14:30 mark:  Druckenmiller’s Follies

Even the best and the brightest make mistakes.  I made a lot of money for Bankers Trust in the mid-1990’s take the other side of one of Carl Icahn’s mistakes in the junk bond market (Stratosphere Casino bonds).   When AMZN’s bubble pops, the stock quickly deflate and likely end up where it was when the Fed started its QE, which is under $50.

I go into AMZN’s 3rd quarter results and show why the press release and Wall Street over the Company’s Q3 results are nothing but hot air injected into this over-inflated Ponzi scheme business model.  You can access this report here – I will be raising the price again when I update it to reflect AMZN’s 4th quarter and full year:   AMAZON dot CON

If you have already purchased the report, please contact me and I will email you the Update PDF.

AMZN Parabolic

 

How To Play Amazon’s Earnings Today

Real life result from Dave’s amazon report. I purchased the report and opened a position in Jan, 16 puts. The market turned against the trade and I added to the position. Monday two weeks ago I covered my trade. With the proceeds I now have a monster box of silver eagles, my investment back, and a new position in amazon puts. Thanks Dave.  – James

Amazon is projected by the collective Wall Street brain trust to report a loss of 13 cents per share today after the market closes.  Since it’s last report in July, this projected loss estimate has been reduced as earnings draw near, which tells me that the snake-oil salesmen at AMZN have been “guiding” Wall Street to reduce its loss estimates.

It also tells me that AMZN likely intends to publish a loss/share which “beats” the WallAMZN_PIC Street estimate.  While there’s a chance I’m wrong, in recent quarters Jeff Bezos has stepped up his accounting manipulation games in order to show reported GAAP numbers which are much better than the true numbers,  the latter of which (click on the image to access my AMZNdotCON report) can be derived – though not fully derived – by tearing apart AMZN’s financials including the footnotes and reconstructing reality.

The reality is that AMZN continues to bleed cash.  It’s already burned through more than half of the cash it raised from two successive junk bond deals which raised $9 billion dollars.  My AMAZONdoCON report explains how and to what degree the bean-counters at AMZN take full advantage of exploiting the inherent weaknesses in GAAP accounting rules.

Here’s my best suggestions for how to play AMZN’s latest theatrical earnings production today:

  1. If you are short the stock:  hedge against a gap up in the stock by buying some out of the money calls – I like the Oct 30, 600-strike call;
  2. If you are short the stock and don’t want to pay call premium – which is what I always recommend avoiding:  you can short some puts against your short.   I like the Oct 23, 550 puts for $17.  If I’m wrong and AMZN stock gets hit, you’ll make money vs where the current price of $568 PLUS if AMZN closes above 550 tomorrow you’ll get to keep the $18 premius ($18k on 10 puts).
  3. If you are flat the stock but want to short it:   You can sell short an out of the money call that expires tomorrow.  I like the 600 calls for $12.  If AMZN gaps down, you’ll get to keep the premium and you have one-day risk.  If AMZN gaps up $40 higher like last quarter, you might get taken short the stock tomorrow but you’re effective cost of the short position is $612/share.  Typically AMZN fades at least for a few days after a big earnings “gap up” and you can take profit on the short.

The graph below shows the extreme degree to which AMZN is manipulate, as regardless of a “beat” or “miss,”  the stock experiences a big gap up or down the day after it reports:

AMZN

Jeff Bezos Is The Poster Child For U.S. Systemic Ponzi Scheme

Forbes released its annual list of wealthiest Americans this week.  The data shows that Jeff Bezos, the founder and CEO of Amazon.com, made $16 billion in 2014.  While perhaps admired by the segment of our society that worships the dollar above all else, this is nothing more than the grotesque reminder how just how fraudulent the United States system has become.

Bezos earned in one year more than 8x the amount of net income that he has delivered to AMZN shareholders cumulatively over the 20-year operating history of the Company:

AMZNnetIncThis is well beyond the bounds of obscenity. It’s criminal. The SEC allows Bezos to get away with semi-fraudulent accounting. It lets him get away with misrepresenting the Company’s “free cash flow” when it makes its quarterly “earnings” report to shareholders.

Jeff Bezos represents the most insidious form of fraud of in this country. He’s far worse than Madoff. Madoff just screwed over his wealthy peers. Bezos is sucking wealth from every nook and cranny in the investment fund world, including and especially the the average middle class mutual fund and every single pension fund invested in AMZN stock.

Amazon’s operations burn cash like a Weimar-era furnace.  The company burned over $4 billion dollars between end of its first quarter in 2015 (end of March) and the end of its second quarter in 2015 (end of June).   The Company had almost no debt at the beginning of 2012 and by the end of 2014 it had $9 billion.  Nearly half of the cash was incinerated during the April – June quarterly period this year.

But it’s not entirely Bezos’ fault.  Ultimately the blame falls on the institutional pools of investment capital and the retail investors who trust their “expert” financial advisors with their money.   The idea of value investing and investing based on fundamentals was exterminated from the system a long time ago.  Almost every single pension fund manager and every single investment advisor in this country would  not know how to engage in serious fundamental investing even if it were required to save their lives.

Of course, we know what Jeff Bezos thinks about all of this:

Full Retard Fiat Monopoly Money

Some moronic German with too much printed monopoly money in his pocket has decided to pay nine times revenue for Business Insider – LINK.  Nine paper dollars for every paper dollar of revenue!!   It brings to mind the infamous picture of the German woman using her marks to fuel her furnace:

GermanMarksFor those who don’t know, Business Insider is the comic book version of “Wall Street News For Dummies.”   If you didn’t know that it was a serious attempt at “inside Wall Street reporting,” you would have thought that it was the business section of The Onion.

Paying 9x times sales for BI has got to be one of the most retarded business deals I’ve ever witnessed.  Especially since BI’s revenues are primarily derived from advertising.  Who in their right mind would pay anything for a quirky, nich-focused business dependent on ad revenues when Wall Street business activity is declining quickly and the world is on the cusp of the greatest economic depression in history?   Clearly Axel Springer was born with a silver spoon in his mouth and decided he needed to unload some of his pocket change.

Kudos to Henry Blodget, one of Business Insider’s founders, who has managed to bamboozle the business world again.  Recall he was Merrill Lynch’s internet stock “analyst” during the tech bubble years and made his fame as Amazon’s chief snake-oil salesman.  It should come as no surprise, of course, that Jeff Bezos is a 3% holder of Business Insider stock.

The earnings of the companies in the S&P 500 contracted about 1% year over year in the first half of 2015.  I expect an even bigger contraction in the 2nd half.  Typically, a shrewd businessman would not pay any multiple of revenues for a business with contracting earnings.  An even more shrewd businessman would likely balk at paying a measurable discount to revenues for Business Insider.

This deal is nothing more than direct evidence that QE has done nothing other than trigger the biggest misappropriation of capital in history.  But with ZIRP, capital free to privileged borrowers in the U.S.  Worse, with NIRP all over the EU, spoiled mush-brains like Springer can actually get paid to borrow money in euros.

This is going to end very badly.  As Carl Icahn said earlier today, “it’s not a question of if, it’s a question of when.”