AMZN is down 10% today on already 3 times higher volume than the 90-day daily average. Amazon.com’s business model is nothing but a massive, cleverly disguised Ponzi scheme. This is why, despite impressive sales growth every quarter, AMZN can’t make any money. In fact, in most quarters it actually bleeds money when analyzed from a cash-in/cash-out basis.
In its earnings report yesterday, for instance, if you skip everything and zero-in on the Statement of Cash Flows, you’ll see that “Net cash provided by operations” was -$2.5 billion. When you net out capex, Amazon burned at total of $3.5 billion in cash. In fact, it’s projecting an operating loss for next quarter of anywhere between $55-455 million. That will burn even more cash. At some point it will likely have to raise more money this year.
I wrote an article detailing why I thought eventually AMZN would implode: Is Amazon A Giant Ponzi Scheme Dressed In Drag?
The reason Amazon can’t make real money and has been suffering declining operating margins for several quarters in a row now is that, ultimately, AMZN achieves sales growth by getting a product from the factory floor to the consumer’s floor more cheaply than just about any other retailer. I love AMZN for this reason.
But the cost of doing that is called “fulfillment.” Jeff Bezos went to agreat effort and expense back in AMZN’s early days to make sure the accounting rules would enable him to hide this cost in the financial statements. But as you see from the operating margin contraction over time, which will be negative next quarter, the Company is hitting the old “law of diminishing marginal returns” wall.
Perhaps this is why insiders have been selling the shares vs. buying at a 3.2 million shares to zero ratio over the last 12 months.
Amazon is one of the few internet stock bubble companies that actually survived the tech stock crash of 2000. My hat’s off to Bezos for managing that feat. But, as the actual results of his operations show, it’s a testament more to the fact that he’s perhaps the greatest snake-oil salesman of our era rather than an accomplished business operator. This is why the actual cash generated from the AMZN business model has been next to nothing over the past 14 years.
You can ignore reality, but you can’t ignore the consequences of reality. Ultimately, AMZN die-hard shareholders who stick it out rather than sell now will eventually face some very unpleasant consequences – possibly as soon as this year.