<% ' AvantGo:MarketClose %>DJIA 8592.10 +97.07 (+1.14%) S&P 500 1098.67 +12.74 (+1.17%) Nasdaq 1771.39 +14.20 (+0.81%) Value Line ndx 851.24 +12.60 (+1.50%) 30-Year Bond 105 6/32 -1 8/32 5.16% Yield<% ' AvantGo:End %>
<% ' AvantGo:Heroes %>Specialty coffee roaster and retailer Starbucks Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBUX)") else Response.Write("(Nasdaq: SBUX)") end if %> had a screaming good time today, rising $3 15/16 to $43 3/8 after reporting a 5% increase in October same-store sales (really the four weeks ended October 25) compared with the same period last year. Total revenues jumped 29% to $109 million from $84 million a year ago. Starbucks appears to be on track so far this fiscal year -- earlier this month, the company said it expects sales at stores open for 13 months or more to increase 4% to 6%. For fiscal 1998, which ended September 27, the company reported a 5% increase in comparable store sales and a 34% gain in total revenues of $1.31 billion. The company is scheduled to announce fiscal fourth quarter and full year earnings results November 12. In October, Starbucks opened 43 new stores worldwide, putting it on pace to exceed the 487 stores it opened in fiscal 1998.
Audio and multimedia workstations maker Sonic Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNIC)") else Response.Write("(Nasdaq: SNIC)") end if %> flew up like a bat out of hell, rising $2 21/32, or 96.6%, to $5 13/32 after reaching as high as $7 3/8 this morning. The company -- whose workstations are used in preparing music, video, film, graphics, and other entertainment software -- yesterday reported a fiscal Q2 operating loss of $0.06 a share, an improvement over last year's loss of $0.19 and enough to beat the First Call mean estimate by a penny. Revenues, totaling roughly $5.4 million, were up 14% from a year ago and 27% from the previous quarter. The company is apparently "the leading supplier of professional audio workstations for mastering applications," according to a Sony <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNE)") else Response.Write("(NYSE: SNE)") end if %> executive, and "the most widely used system for CD and DVD premastering in the world today," as an executive of Pioneer Electronic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PIO)") else Response.Write("(NYSE: PIO)") end if %> says. Sonic's collaborating partners include Sony and Pioneer, as well as Warner Music Group.
RISING SPIRITS: Aircraft maker Boeing Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> leapt $1 5/16 to $37 9/16 after saying it has produced a record 51 planes this month, finally putting it on track to meet delivery targets... Chrysler Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> sneaked ahead $1 3/4 to $48 1/8 after announcing that the U.S. Court of Appeals for D.C. ruled in favor of the company, saying that the government cannot apply new testing requirements to vehicles after they have already been manufactured... Computer networking company 3Com Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> haunted up $1 3/4 to $36 1/16 amid speculation that it may soon win a deal with AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>... Telecommunications equipment company Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> scared up a $1 3/4 gain to $17 3/16 on rumor that it will soon reveal a contract with a new customer.
Casual apparel retailer Gap Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> crawled up another $1 1/8 to $60 1/8 following its announcement that it plans to buy back up to 30 million shares and split its stock 3 for 2... Satellite manufacturing and services company Loral Space & Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOR)") else Response.Write("(NYSE: LOR)") end if %> slinked up $2 3/8 to $18 13/16 after reporting a Q3 loss of $0.20 per share (before a gain) versus a loss of $0.06 a year ago and meeting analysts' estimates. The company said Q3 results are "on target" with its expectations... Pet food and Energizer batteries maker Ralston Purina Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAL)") else Response.Write("(NYSE: RAL)") end if %> barked up $1 15/16 to $33 3/8 after reporting fiscal Q4 EPS of $0.31 (before gains), up from $0.26 a year ago and ahead of analysts' expectations of $0.28.
Drug company Pharmacia & Upjohn <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNU)") else Response.Write("(NYSE: PNU)") end if %> crept up another $2 1/4 to $52 7/8 after yesterday saying that surging U.S. prescription sales helped boost Q3 EPS to $0.41 (before one-time items), better than last year's $0.35... Newspaper company Knight-Ridder Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KRI)") else Response.Write("(NYSE: KRI)") end if %> jumped another $2 3/16 to $50 15/16 following its announcement of plans to repurchase an additional 3 million shares... Computerized online lottery products and services company GTECH Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTK)") else Response.Write("(NYSE: GTK)") end if %> slithered $1 3/4 higher to $24 after announcing plans to pursue a "growth strategy" and buy back up to $90 million in shares, $40 million more than the previously announced level. The company also said it has ended talks to acquire Transaction Network Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNSI)") else Response.Write("(Nasdaq: TNSI)") end if %>, citing financing concerns.
Data General <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DGN)") else Response.Write("(NYSE: DGN)") end if %> howled ahead $3/4 to $16 13/16 in active trading after Business Week's "Inside Wall Street" column reported that the computer systems and equipment maker might be taken over by the likes of Storage Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STK)") else Response.Write("(NYSE: STK)") end if %>, Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>, Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>, or IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> for $23 to $40 a share. For a Ghoulish take on Business Week's "Inside Wall Street" column, click here... Physician practice management company PhyCor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHYC)") else Response.Write("(Nasdaq: PHYC)") end if %> lurked up $1 to $7 1/4 after CEO Joseph Hutts told The Wall Street Journal that he has received "about half a dozen" offers from investment firms and others to possibly take the company private, based in part on the firm's historically low stock price.
Duke Energy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DUK)") else Response.Write("(NYSE: DUK)") end if %> was shocked for a $1 5/8 gain to $64 11/16 after the electric company announced it will exit the appliance-sales business by year end because it couldn't compete against large retail appliance stores... Pool Energy Services Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PESC)") else Response.Write("(Nasdaq: PESC)") end if %> leapt $1 17/32 to $13 11/32 after announcing it will be acquired by Nabors Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NBR)") else Response.Write("(NYSE: NBR)") end if %> for about $486 million, including assumed debt. Nabors rose $1 1/16 to $18 1/2... Collectibles, gifts, and art products maker Media Arts Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARTS)") else Response.Write("(Nasdaq: ARTS)") end if %> glided up $1 1/2 to $12 3/4 after announcing plans to buy back an additional 800,000 shares... Medical contract research firm Parexel International Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRXL)") else Response.Write("(Nasdaq: PRXL)") end if %> slinked ahead $1 to $22 1/16 as Lehman Brothers reiterated its "buy" rating on the stock with a price target of $30.
Contract drug research firm Quintiles Transnational Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QTRN)") else Response.Write("(Nasdaq: QTRN)") end if %> spooked up a $3 gain to $45 1/4 after Volpe, Brown Whelan raised its rating on the company to "strong buy" from "buy" with a 12-month price target of $65... Motion picture projection equipment maker Ballantyne of Omaha <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTN)") else Response.Write("(NYSE: BTN)") end if %> rose $1 1/16 to $7 3/4 after saying it plans to buy back an additional 1.25 million shares, about 10% of outstanding shares... Memorial maker Rock of Ages Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROAC)") else Response.Write("(Nasdaq: ROAC)") end if %> lurked ahead $1 1/16 to $12 5/8 after Business Week's "Inside Wall Street" column said its shares could double in six to 12 months based on projected earnings growth of 30% a year.
Earnings Movers
Allmerica Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFC)") else Response.Write("(NYSE: AFC)") end if %> up $2 15/16 to $50; Q3 operating EPS: $0.72 (excluding one-time items) vs. $0.90 last year; Estimate: $0.78
Business Objects <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOBJY)") else Response.Write("(Nasdaq: BOBJY)") end if %> up $1 13/16 to $16 13/16; Q3 EPS: $0.13 vs. $0.01 last year; Estimate: $0.11
Fair Isaac & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FIC)") else Response.Write("(NYSE: FIC)") end if %> up $1 1/4 to $40 1/8; fiscal Q4 EPS: $0.59 vs. $0.44 last year; Estimate: $0.48
First Years Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KIDD)") else Response.Write("(Nasdaq: KIDD)") end if %> up $2 1/4 to $15 3/4; Q3 EPS: $0.26 vs. $0.17 last year; Estimate: $0.21
IDG Books Worldwide <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDGB)") else Response.Write("(Nasdaq: IDGB)") end if %> up $3 1/2 to $15 1/2; fiscal Q4 EPS: $0.10 vs. $0.08 last year; Estimate: $0.07
Jacor Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JCOR)") else Response.Write("(Nasdaq: JCOR)") end if %> up $1 15/16 to $55; Q3 EPS: $0.08 (excluding charges and tax effects) vs. $0.01 last year; Estimate: $0.07
Macromedia <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MACR)") else Response.Write("(Nasdaq: MACR)") end if %> up $2 31/32 to $20; fiscal Q2 EPS: $0.10 vs. $0.01 last year; Estimate: $0.08
New Era of Networks Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEON)") else Response.Write("(Nasdaq: NEON)") end if %> up $9 3/8 to $49 1/4; Q3 EPS: $0.20 (before charges) vs. loss of $0.01 last year; Estimate: $0.09
Perceptron Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRCP)") else Response.Write("(Nasdaq: PRCP)") end if %> up $13/16 to $5 11/16; Q3 EPS: $0.05 vs. $0.33 last year; Estimate: $0.11
QRS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QRSI)") else Response.Write("(Nasdaq: QRSI)") end if %> up $6 to $38; Q3 EPS: $0.35 (before charges) vs. $0.26 last year; Estimate: $0.33<% ' AvantGo:End %>
<% ' AvantGo:Goats %>Investors want it their way, and if they don't get it, well... Today, a bunch of them voiced their displeasure with the business named for Dave Thomas's daughter, sending shares of Wendy's International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WEN)") else Response.Write("(NYSE: WEN)") end if %> down $3 1/2 to $21. The company cooked up Q3 EPS of $0.33 per share, well off last year's $0.39 mark and a penny shy of the Street's projections. Many analysts, however, regarded Wendy's EPS as $0.28 after excluding $0.05 of earnings from the sale of real estate. A spokesperson for the company told Bloomberg that a franchise-based business like Wendy's cannot report a gain from a real estate sale as an extraordinary item. Instead, such gains must be reported as part of operating income. At least six brokerages downgraded the burger chain today, as some analysts had hoped the real estate sales would make up a smaller portion of the firm's pre-tax earnings this quarter.
The proverbial "blood in the streets" ran for Pegasystems Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PEGA)") else Response.Write("(Nasdaq: PEGA)") end if %> shareholders today, as the provider of software that streamlines a company's interactions with customers saw its stock tumble $5 9/16, or 34.5%, to $10 9/16. The firm reported a Q3 gain of $0.17 per share last night, missing Wall Street's consensus estimate by $0.03 per share. Some clients postponed purchases during the quarter, according to reports, pulling sales below expectations. Executives at the firm declined to say whether those clients do business in the financial services industry, which has been hard-hit by economic weakness in Russia and Asia and accounts for about two-thirds of Pegasystems' annual revenues. Three brokerages downgraded the fast growing company today, with two going all the way down to "hold" ratings.
QUICK DECAPITATIONS: Shareholders of Infoseek Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> were scared SEEK-less today, dropping the stock $3 9/16 to $29 5/8 after the Internet portal company reported a third-quarter loss of $0.08 per share, better than last year's loss of $0.19 per share but still worse than the loss of $0.06 per share expected by the analysts surveyed by First Call. Seek and ye shall find more info in today's Breakfast With the Fool... Other Internet-related stocks were sliced today as well. Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> fell $1 1/8 to $21 7/16, Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> leaked $2 5/16 to $40 5/8, and Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> shed $1 7/16 to $38 9/16
Hospitality information systems developer Micros Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCRS)") else Response.Write("(Nasdaq: MCRS)") end if %> tumbled $5 3/4 to $22 1/16 as investors were spooked by a J.P. Morgan downgrade to "market perform" from "buy" after the company reported Q1 EPS that missed Street estimates by $0.02 at $0.23 (before a charge for closing facilities)... Information technology services provider Electronic Data Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EDS)") else Response.Write("(NYSE: EDS)") end if %> dropped $3 5/16 to $40 11/16 after reporting Q3 EPS of $0.44 before a $0.05 charge, which beat the Street's estimates by a dime. However, backing out a $0.09 gain from the sale of its leasing portfolio, EDS really ended up topping estimates by a mere penny... It was a cold day for The North Face <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNFI)") else Response.Write("(Nasdaq: TNFI)") end if %>, which slid $2 1/8 to $11 15/16 after its Q3 EPS (excluding charges) shocked analysts by coming in at $0.95, $0.08 below their expectations.
Telecom services integrator Premiere Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTEK)") else Response.Write("(Nasdaq: PTEK)") end if %> was carved for a $5/8 loss to $5 1/2 after reporting Q3 EPS of $0.05 (excluding charges), well below the year-ago $0.23 figure... Manufactured housing firm American Homestar <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HSTR)") else Response.Write("(Nasdaq: HSTR)") end if %> was torched for a $3 9/16 loss to $16 3/8 after Credit Suisse First Boston downgraded the company to "hold" from "buy"... Bread-and-snackmaker Interstate Bakeries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBC)") else Response.Write("(NYSE: IBC)") end if %> crumbled $7 15/16 to $25 after it said price competition would likely pull Q2 EPS below the Street's $0.53 estimate... Fiber-optic transmission and local area networking (LAN) products maker MRV Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRVC)") else Response.Write("(Nasdaq: MRVC)") end if %> slipped $9/16 to $6 15/16 after Gruntal & Co. downgraded the firm to "hold" from "strong buy." MRV reported Q3 EPS of $0.06 yesterday, half of Wall Street's estimate and well short of last year's $0.23 figure.
Semiconductor wafer processing tools maker Semitool Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTL)") else Response.Write("(Nasdaq: SMTL)") end if %> was hacked apart for a $1 11/16 loss to $6 7/16 after saying decreased orders will likely drive fiscal Q1 sales "significantly lower." The Q4 per share loss was $0.05, which was a dime below the Street's estimates... Flexible circuits and electrical cables maker Parlex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRLX)") else Response.Write("(Nasdaq: PRLX)") end if %> bled $2 13/16 to $9 5/16 after unexpected losses in its automotive-related businesses resulted in fiscal Q1 EPS of $0.04, missing analyst's projections by $0.12 and last year's figure by $0.15.
Morbid Earnings Movers
Alydaar Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALYD)") else Response.Write("(Nasdaq: ALYD)") end if %> down $9/16 to $6 5/16; Q3 EPS $0.10 vs. $0.13 loss last year; Estimate: None
Metro Information Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MISI)") else Response.Write("(Nasdaq: MISI)") end if %> down $2 5/8 to $23 3/4; Q3 EPS $0.27 vs. $0.18 last year; Estimate: $0.26
MicroStrategy Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSTR)") else Response.Write("(Nasdaq: MSTR)") end if %> down $3 7/16 to $24 3/8; Q3 EPS: $0.05 vs. $0.02 last year; Estimate: $0.04<% ' AvantGo:End %>
GHOUL
ON THE HILL
An Investment Opinion
by
Dale "Curbludgeon" Wettlaufer
Amazon Impresses Again
<% ' AvantGo:FOTH %>Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> returns to this space today, having reported strong results on Wednesday after the bell. The Seattle-based book and music store reported strong net sales of $153.7 million, more than four times last year's sales and up 32.5% sequentially. Compared to the prior quarter's 32.7% sequential sales gain, third quarter results stacked up very well.
A salient feature of this quarter's sales results was the company's full entry into CD retailing, which generated $14.4 million in sales. That's more than any other Web-based music retailer but less than the pro-forma results of the combined CDNow <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDNW)") else Response.Write("(Nasdaq: CDNW)") end if %> and N2K <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTKI)") else Response.Write("(Nasdaq: NTKI)") end if %>. Nevertheless, if the average CD costs $12, then 1.2 million CDs shipped in the first full quarter of operations is pretty impressive. The established competitor, CDNow, recently reported Q3 revenues of $13.9 million and a sequential growth rate of 20%.
A further difference in the -- yeah, I'm going to use that word -- "stickiness" of the two retailers can be seen in the repeat business statistics the two companies cite in their press releases. For its most recent quarter, 59% of CDNow's business came from repeat customers while 64% of Amazon's revenues came from repeat customers. Given that repeat customer revenues are an important component of same-store sales results for traditional retailers, Amazon.com's performance here was clearly superior.
The company's progress still hasn't turned into earnings. Sales at present are not designed to convert to earnings and cannot reasonably be expected to convert to earnings given the demands of building a worldwide retail business from scratch. Surpassing a discussion of what should be self-evident, gross margin for the quarter was an impressive 22.7%, up slightly from 22.6% last quarter. Impressive is the adjective, yes. Let's look at a couple of highly successful retailers that sell price, service, and selection, rather than highly differentiated products, and examine what percentage of a sales dollar they bring to down:
Wal-Mart: 21.1%
Hannaford Brothers: 25.1%
Costco: 10.4%
Kmart: 21.7%
At its core, Amazon has to be judged as a retailer. It has to be remembered that as a retailer, it will never generate huge margins. Anyone who calls it a "tech company" is just plain wrong. The model of a retailer is to generate sales volume over as small a working capital base and operating expense structure as possible. Judging the company on these metrics is the key to assessing the company. Judging it against a company that has a monopoly in PC operating systems will not get you anywhere. On these metrics, the company did well for itself this quarter.
Inventory turns reached an annualized 26 turns this quarter, meaning the company sells out its entire inventory every two weeks. Ending days sales in inventory was 15.2. With no receivables and ending days in payables at 46.1, the cash conversion cycle for the quarter was negative 31 days. A company derives considerable benefits for its ability to expand and for its valuation if it can turn its inventory 26 times a year and pay the vendors financing that inventory 7.9 times a year. In a discounted cash flow model, the lack of working capital accumulation in the initial years shows up as a big plus in both the initial years and the out-years. This is because of a lack of working capital financing costs as well as the cash drain that inventory represents.
For the quarter, working capital minus cash actually decreased by nearly $20 million. Imagine you ran your own corner store and had to actually finance $20,000 for an increase in working capital, and you also wanted to put on a big $37,000 marketing push. By the time your 30-day payables rolled around, that would actually take a cash outlay of $57,000. Translating that to Amazon.com's quarter, $20 million in marketing and sales costs of $37.517 million was financed by negative working capital requirements. That's a net outlay on those two items of $17.517 million. That directly impacts valuation and financing throughout a cash flow model.
On the earnings front, reported earnings for the quarter were negative $45.17 million, with a per-share loss of $0.90. But let's look at what that entailed. $20.512 million in pre-tax merger and acquisition-related costs rolled through operating expenses. It would actually be helpful to see in the line-item the one-off costs for the quarter, such as the one-time charges for the Junglee and PlanetAll acquisitions, and what is ongoing amortization of intangibles. The company reported pro-forma net income of negative $24.658 million. That is by far the more useful figure because it ignores the amortization of goodwill and purchased intangibles that show up in the income statement.
Like many companies, Amazon.com could allocate a good deal of the difference between the purchase price of acquired companies and the book value of the acquired companies to "in-process R&D" and charge it off in a single quarter and be done with it. Or, electing not to do that, a company could choose a much slower amortization schedule than Amazon.com has elected to lighten up the amortization expense load. So far, though, the company has been going with intangible amortization schedules of roughly three years, which puts a lot of non-cash expenses on the income statement. And we're not the sort of people to treat depreciation as a "non-cash" expense, as if it were free and didn't represent an ongoing need to lay out cash. But amortization of intangibles is an entirely different thing. How a company allocates the purchase price of an acquisition, whether over 3 years or 10 years, doesn't change its cash flow and does not represent a reinvestment need to maintain its current competitive position.
The bottom line on the quarter was that net cash flow from operations was approximately negative $647,000. Net cash from operations will look roughly like this. The final classification of one-time merger charges, as to whether they're cash outlays or amortization, will become much clearer in the 10-Q, but the pro-forma income figure minus working capital investment gets us pretty much to the same point we reach below.
($ in thousands)
Net loss...$(45,171)
Adjustments:
Depreciation...$3,100
Amortization of intangibles
and unearned compensation...$13,400
Noncash interest expense...$8,400
Changes in operating assets and liabilities:
Inventories...$(2,737)
Prepaid expenses...$(5,138)
Accrued advertising...$1,886
Accounts payable...$12,490
Deferred charges...$(32)
Other liabilities and
accrued expenses...$13,155
Less capital expenditures of about $9.8 million, this is a pretty light cash hit for a company quadrupling its sales year-over-year and growing more than 30% sequentially. If an investor has a doubt as to whether Amazon can garner enough market share in books, CDs, and other retail markets to justify its current market cap, that's one thing. But it's not as if the company doesn't have the financing horsepower to do so. So far, the people running this company have made the right decisions and the market obviously has responded. Pundits will say, "Yeah, but I can get it $0.30 cheaper elsewhere, or I like the couches at Barnes & Noble." That's fine, but there are evidently people that don't have time to putz around at Barnes & Noble and who get sick of going into lame chain stores and finding the same commercial stuff on the shelves that was there three months ago.
At this point, the market believes the story and it's not going to stop believing it until the growth story breaks down and the fundamental cash flow story breaks down. As it stands right now, though, this company isn't sucking down hundreds of millions of dollars in cash each year to create 1) growth and 2) a dubious return on invested capital profile down the road. That's why Amazon.com's market cap is where it is. Not that one should readily agree that it's a wonderful bargain at the current market cap, but in my opinion that addresses the question better than the cries of "Internet mania."<% ' AvantGo:End %>
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
WE
DELIVER - Get The Evening News delivered
to your e-mailbox every evening!
See something moving a stock that we didn't cover?
E-mail the
Fool
News Team
and we will start working on the story.
Unfortunately, we cannot answer every e-mail
or respond to individual questions.
|
Contributing Writers Yi-Hsin "Spooky Spice" Chang (TMF Puck), a Fool Brian "Brain Dead" Graney (TMF Panic), another Fool David "Hatchet Man" Marino-Nachison (TMF Braden), a new Fool
Editing |