Yesterday ahead of earnings, AMZN’s stock dropped $60, with $30 of that drop occurring in the last hour of trading. It’s almost as if market-makers, with their customary preview of the impending AMZN headline EPS report in hand, intentionally took the price down to set-up a short-trap. AMZN stock closed at $1390, down $60 from Wednesday’s close.
Shortly thereafter, AMZN’s earnings headline showed $3.85/share, more than double the consensus estimate produced by Wall Street’s Einstein Center For Earnings Forecasts. $1.85 was the expectation. AMZN’s stock shot up to as high as $1480 in after hours, up as much as $90 from the close. Imagine how much money the Big Bank trading desks made assuming they bought all the shares that were sold short in the last hour of trading on Thursday.
Within the first eight minutes of today’s open, AMZN stock shot up to as high as $1495, up $105 from Thursday’s close. As I write this, AMZN is trading below Wednesday’s close of $1450:
A round-trip to nowhere, essentially. Here’s the funny thing about AMZN’s earnings that Wall Street’s finest will never report, if they even know the truth. Embedded in AMZN’s net income is a $789 million non-cash “provisional” tax benefit for the estimated impact of the new tax law. Note that this is a somewhat arbitrarily determined number – which is why its labelled “provisional” – and it’s non-cash. This GAAP, non-cash tax “benefit,” as guesstimated by AMZN’s accountants, added $1.63 per share to AMZN’s headline EPS report.
Regardless of how you want to account for this, at face value AMZN’s stock is trading at 233x trailing earnings. Not including the GAAP, non-cash tax benefit, AMZN stock is trading at 315x trailing earnings.
This is not the only problem with the quality of AMZN’s earnings. I’ve dissected AMZN’s entire financials for my Short Seller’s Journal subscribers, as reported, showing the areas in which AMZN has exploited the current highly liberalized GAAP accounting standards to generate the appearance of financial performance that is not real.
Despite Jeff Bezos’ claim that AMZN generated $8.4 billion LTM “free cash flow,” this misleading metric was down 20% from the end of Q4 2016. But that’s on display in the earnings slides that AMZN publishes every quarter. On a true GAAP basis, AMZN generated an LTM cash flow deficit – i.e. negative $1.46 billion.
This is just a small portion of AMZN’s accounting abortion. Unfortunately, until the capital markets are no longer willing to finance AMZN’s cash burning Rube Goldberg operational structure, the stock is very difficult to short. There will come a time, however, when sand gets blown into Jeff Bezos’ elaborate gears of deception. When this occurs, the rush for the exits by shareholder will be epic.
Ah, but how the slack jawed masses loved to be deceived by Merlin, er, I mean Bezos, the magik pixie and his tinkerbell familiar, Alexa.
“Hey Alexa, what should I do today?”
“What a great question you ask, my wise lord and master” Says Alexa.
“Buy some Amazon stock”
‘ Become a member of Prime’.
‘ You’ll soon become one with the Amazon singularity, sitting at the right hand of Merlin; all will be good in the land of the bald headed king”
‘Buy buy buy. Consume consume consume. Stuff is good. Debt is good.
Spend and be happy.’
While you cover the nuts and bolts of Amazon’s unsustainable business model, here is yet another reason to be wildly skeptical:
What is described in that article is what I’m seeing at the two WFS I use regularly. Out of stock products more common, decline in produce quality, lots of managers walking around with employees getting in the way of customers. I have not been using WFM as much these merger effects have emerged. I go to Kroger and local specialty stores more often.
Hey Dave you nailed it again. Look at the gyration of the stock today. From 1458 to 1387. That’s a wild ride. I guess we will see what happens in the next few days and weeks. Thanks again!
Thanks! Not too hard for anyone willing to roll up their sleeves and actually take a close look at AMZN’s 10-k