Colin Barry

Amazon in 2000 (BAV, Monday, Week 4)


Amazon in late 2000: expanding like crazy, minority stakes in many startups (,, etc.), extremely hard to tell whether they're a doomed tech shell game or a sly game-changer.

Ravi Suria: Increasing competition (B&N, Borders), negative FCF, out of cash in the next six months and unable to service debt.
Amazon: No way.
Broader context => Post-bubble burst, tension between equity and credit analysts, potential incentive to write contrarian reports. All of Suria's research uses publicly-available why does stock price plunge 15% after report's release?

Assessing progress via financial statements is really hard if a firm is growing rapidly. Especially with operating leases and aggressive goodwill amortization (not really an issue anymore...).\

One argument: you could just look at Amazon's operating metrics. LTV > CAC. BUT Amazon is trying to change customer behavior.
Fundamental thesis = customer service and satisfaction will differentiate Amazon; e-commerce will not spur ruthless competition on price alone. Obviously true in hindsight; not at all obvious at the time. Secular hypotheses are hard to evaluate.

Think about seasonality: Suria extrapolates AMZN's drop in payables post-Christmas forward to the whole year. Doesn't make sense; AMZN is paying merchants for XMas wares. The machine is built around negative NWC --- growth generates cash.