An internal memo at Amazon is circulating around. It is a bad news message to its part-time workers stating that their health coverage is being cancelled. Whether the note is authentic or not I do not know, so I will not reproduce it here. If that is true it should come as no surprise. Read on.
Jeff Bezos, who had a vision for an internet-based retailer, founded Amazon in 1994. In a short time Amazon became a household name as the go-to place for books, music, and millions of products. It’s stock soared and it spawned hundreds if not thousands of imitators. It is truly a global marketplace and a brilliant one at that.
Sales last year were $107 Billion, propelled in part by aggressive innovation, e.g., Amazon prime, and the fact that many Americans do not pay sales tax on Amazon purchases.
Amazon is cool, easy, and, convenient, but they just don’t make much profit. In a January 29, 2016, Wall Street Journal article author Greg Bensinger asked this question, “Is Amazon.com Inc. finally getting serious about profits?
Amazon has probably wrung all they can out of vendors and delivery firms, and is possibly now cutting employees benefits. If true Amazon has limited options. If it hikes up delivery fees and prices they risk driving low to middle income customers back to Walmart, Target, etc.
Here is the big question: is Amazon a house of cards? It has a market cap of $265 Billion and has made only very thin profits.Yet Jeff Bezos’ net worth is a stunning $46.7 Billion. While it appears to have a positive cash flow, according to Timothy Green of the Motley Fool* “its adjusted free cash flow is actually negative.” Negative cash flow is a huge risk for any going concern.
While Amazon seems to be a house of cards, it has been a darling on Wall Street. As soon as mutual fund analysts wake up, Amazon’s stock may well wilt, a situation that may have already begun. Their stock price was almost $700/share. It was recently down to $564. That may be a sign of big trouble ahead in the next 5-10 years.
http://money.cnn.com/2015/08/28/investing/amazon-cash-flow/
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