Amazon: How To Pick Up This Hot Potato – Forbes
My working hypothesis on Jeff Bezos is he’s certifiable. Not only does he fit Joseph Schumpeter’s best example of creative destruction (Macy’s fleeing, tail between its legs) but Bezos thirsts to play in every zippy growth sector extant in the universe. I put aside his personal vanity purchase of The Washington Post and any interplanetary exploration initiatives.
Leaving aside valuation, which the Street’s analysts struggle with quarter after quarter, and fail, Amazon carries plenty of balance sheet strength and operating cash flow to fund new ventures. Bezos hasn’t given away prodigal amounts of Amazon’s equity to key employees. Variance between GAAP and non-GAAP earnings is moderate and not too many tech houses can say this.
With Facebook, Alibaba and Alphabet, analysts quarterly wrestle with all their numbers and model future earnings power based on their near-term revenue projections. This doesn’t work with Amazon whose heady revenues stats don’t translate into credible earnings projections 12 months ahead.
Bezos, meanwhile, toys like a cat with his analyst constituency, the mice. By design guidance is worthless: “Operating income is expected to be between $250 million and $900 million compared with $1.1 billion in the year ago first quarter.” This ain’t guidance but rather a slap in the face. The message sub silentio is either you’re a long term believer or get lost.
Analysts never comment on such corporate conduct fearing to lose access to management, even to a bland vice president in an investor relations spot. More egregious, tech analysts never comment on the wide variance between GAAP and non-GAAP earnings for worst offenders like Salesforce.com.
All this nonsense gets reflected in the jitterbugging of Apple and Internet stocks, the after 4p.m. turmoil, on quarterly report releases and results compared with guidance numbers and the consensus. Overnight, variance in stock prices can range up to 10%.
For Amazon the haircut was 4% last week on an $800 plus share price, putting its market capitalization around $400 billion, approximating ExxonMobil and not too far below Apple. Fourth quarter numbers badly missed. Apple on the plus side with ExxonMobil below consensus.
Consider Internet properties, Apple and Exxon must tot up to 20% of valuation for the S&P 500 Index. Throw in market weighting for tech, financials and energy and you’re over half the market’s valuation. The Street’s predictive power past 12 months rates no more than a gentleman’s C.
My dressage horses score higher in terms of intelligence, obedience and performance in the ring. I don’t dream of asking them for guidance because I rate their intelligence no higher than a 2-year old.
After digesting Amazons 26-page quarterly you must conclude that while initiatives on new sectors are breathtakingly ambitious, they live within their numbers. Bezos doesn’t go deeply into debt, merely sacrificing earnings rather than piling on leverage. So the risk in Amazon is valuation risk, not balance sheet risk.
Amazon solely is a money managers’ stock because analysts have no value added in defining its risk-gain ratio, a serious variance. Amazon carries minimal earnings and cash flow related to its $800 plus stock price. Nobody knows when Bezos turns to a harvesting mode on revenues, zippy, over 20% and counting, quarter after quarter.