Amazon's Debt
Tuesday, May 05, 1998
by Paul Larson (TMFParlay@aol.com)
CHICAGO, IL (May 5, 1998) -- After hitting a new all-time high yesterday (which David forgot to mention), the Fool Portfolio fell back a bit with the rest of the market today. While the S&P 500 and Nasdaq were down 0.57% and 0.65% respectively, the Fool Port only coughed up 0.43%. Today was one of those days where we lost (money), but still won (against the market). Call it an absolute loss and a relative win. We are still beating the market nicely for the year and, of course, ever since the portfolio was started.
Before hitting the news surrounding the stocks, we have some news of our own to announce. Coming to a radio near you in the future will be "The Motley Fool Radio Show." That's right, Dave and Tom will be hitting the airwaves later this year with their own syndicated radio show all about money and investing. I find it funny that after bashing the traditional media so hard last week in the "Will It All End Badly" recap that we find the Fool entering this media ourselves. Hey, what better way to stimulate change than to lead by example? Click here to read the press release concerning the radio show.
Turning an eye to the stocks in the port, Moody's announced that it is rating Amazon.com's (Nasdaq: AMZN) proposed debt at "Caa2." For those who don't understand debt ratings, this is solidly in junk-bond territory. Are we looking at a company confident that it can attain profitability in the future and looking to not dilute its current shareholders? Or, are we looking at a company desperate for cash that can only get money by taking on debt at high rates? How you answer these questions probably answers how you feel about the company's future.
Let's take a quick snapshot at the company's balance sheet and how has it been changing over time to see what the cash-dynamics have been at Amazon:
($ Millions) 3/31/98 12/31/97 9/30/97 6/30/97 Cash 98.6 109.8 44.7 47.7 Long Term Debt 77.4 78.2 0.2 0.2 Net Cash 21.2 31.6 44.5 47.5It should be rather clear that the company has been burning cash in its efforts to grow, and the debt offering certainly shows that the company does not expect to go cash flow positive any time soon. Long story short, the increasing debt and dwindling cash should be a yellow flag for those who hold the stock to, at a minimum, pause and reflect on the company's finances. You can read a summary of Moody's opinion by clicking here (Web link). Amazon's stock fell little over a dollar today.
While we're talking about debt and leverage, what the heck is up today with Trump (NYSE: DJT)? The stock was the largest percentage mover in the portfolio when it moved against our short position by 8.21% to close at $9 1/16. This jump forward comes in the face of news that while Atlantic City's combined gaming win was down less than one percent in revenues last month versus April '97, Trump's Atlantic City casinos posted a whooping 10% decline for the month. This comes on the heels of significant negative comparisons throughout the first quarter, too. I'm at a loss to explain today's action, short of blaming it on yet more hot air about the company being possibly bought out. Maybe it's up because Da Donald will be on Letterman tonight? Who knows.
In miscellaneous news today, KLA-Tencor (Nasdaq: KLAC) received a new "buy" rating from the land of the Wise today. It's not of significance in the big picture, but we'll gladly take it. The stock responded by rising $1 3/8 to bid $41.50 this spring Tuesday.
It's also interesting to note that Ma Bell's baby, Lucent Technologies (NYSE: LU), was at one point today larger than the mother company based on market capitalization. Again, not anything of extreme significance, just an interesting factoid since both Lucent and AT&T (NYSE: T) are in the portfolio via our own variety of the Dogs of the Dow method, the Foolish Four.
Tomorrow will find America Online (NYSE: AOL) reporting its quarterly earnings after the market closes. The current mean estimate calls for the company to earn twelve cents per share. With the profit estimate currently sitting at $0.87 per share for fiscal 1999, the company is trading at over 100x forward earnings. I think it is safe to say that AOL is not an "earnings story" at the moment. What the market will probably be looking for tomorrow is revenue strength and subscriber growth, not just earnings. These are leading indicators to profitability in the next century, which is what investors today are clearly betting on.
In a move all investors should applaud, America Online is opening up their post-earnings conference call to ordinary investors over the Internet. The formerly analyst-only call will be broadcast live tomorrow at www.audionet.com at 4:45 p.m. Eastern. AOL's execs deserve some kudos for leveling the playing field for all investors just that much more. Let's hope that other companies follow AOL's lead in the future.
That's about all the news fit for print today, Fool.
Oh, and to all the Mexican Fools out there, Happy Cinco de Mayo!
-Paul Larson
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Day Month Year History FOOL -0.43% 3.84% 26.22% 323.58% S&P: -0.57% 0.35% 14.96% 143.38% NASDAQ: -0.65% -0.19% 18.76% 158.95% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 89.50 2361.20% 5/17/95 1960 Iomega Cor 1.28 8.00 524.80% 10/1/96 84 LucentTech 23.81 73.06 206.88% 9/9/97 290 Amazon.com 38.22 93.56 144.79% 8/12/96 130 AT&T 39.58 61.31 54.92% 2/20/98 215 DuPont 59.83 75.69 26.50% 1/8/98 115 S&P Depos. 95.91 111.53 16.29% 2/20/98 200 Exxon 64.09 74.00 15.46% 2/20/98 270 Int'l Pape 47.69 52.38 9.82% 1/8/98 425 3Dfx 25.67 24.63 -4.06% 4/30/97 -1170*Trump* 8.47 9.06 -7.01% 8/24/95 130 KLA-Tencor 44.71 41.50 -7.18% 6/26/97 325 Innovex 27.71 24.19 -12.71% 8/13/96 250 3Com Corp. 46.86 34.44 -26.52% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 63545.00 $60963.13 9/9/97 290 Amazon.com 11084.24 27133.13 $16048.89 5/17/95 1960 Iomega Cor 2509.60 15680.00 $13170.40 10/1/96 84 LucentTech 1999.88 6137.25 $4137.37 2/20/98 215 DuPont 12864.25 16272.81 $3408.56 8/12/96 130 AT&T 5145.11 7970.63 $2825.52 2/20/98 200 Exxon 12818.00 14800.00 $1982.00 1/8/98 115 S&P Depos. 11029.25 12826.09 $1796.84 2/20/98 270 Int'l Pape 12876.75 14141.25 $1264.50 8/24/95 130 KLA-Tencor 5812.49 5395.00 -$417.49 1/8/98 425 3Dfx 10908.63 10465.63 -$443.00 4/30/97 -1170*Trump* -9908.50 -10603.13 -$694.63 6/26/97 325 Innovex 9005.62 7860.94 -$1144.68 8/13/96 250 3Com Corp. 11715.99 8609.38 -$3106.62 CASH $11558.06 TOTAL $211792.03
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