The Morning Coffee – 25 September 2012

Here are a few stories to read this morning.

  • The Amazon Alphabet: From Audio Books to Zoo (The Millions)
  • Amazon's Imminent Liquidity Crunch And Share Price Collapse (Seeking Alpha)

  • Going blind? DRM will dim your world (ZDNet)
  • Press+: Publishers are offering less free content online (paidContent)
  • Wikipedia’s Writing — Tests Show It’s Too Sophisticated for Its Audience (The Scholarly Kitchen)
  • About Nate Hoffelder (10619 Articles)
    Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

    8 Comments on The Morning Coffee – 25 September 2012

    1. Reading the Seeking Alpha article on Amazon’s stock makes me think that the days of significant ebook discounting by Amazon across the board may soon be a memory. If the author is right and Amazon’s stock does collapse, there will be a great deal of pressure on Amazon to change its strategy. Whether the analyst is right or not, only time will tell and we do need to keep in mind the example being set by Apple’s stock.

      • Amazon and Apple are fundamentally different, though.

        One is awash is free cash, has 30%+ margins on almost all their devices, and gets people lined up by the hundreds of thousands outside their retail location each time they launch a device. Their share price reflects this accordingly, with a solid P/E ratio of just over 16.

        The other has almost no money on hand, razor thin to no margins on almost everything they sell, and has a P/E ratio of over 300. It doesn’t mean Amazon is doomed, and I wouldn’t short the stock just yet, but a company with stock leveraged that highly is a major warning sign, and puts Amazon as a much more risky investment than Apple.

    2. 1) At the very top of the Seeking Alpha article, Andre Fernon, the author of the piece, says that he’s shorting Amazon stock. That means that he’s betting that Amazon’s stock price will go down, which provides him with a strong incentive to make the most negative arguments he can.

      2) Anyone can contribute articles to the Seeking Alpha website, and they’re compensated based on the number of page views their articles receive. That provides another incentive for posting a controversial, negative article–controversy gets more page views.

      Mr. Fernon’s arguments may be correct, but I’m highly skeptical.

      • Thanks for the context. I ususally only go th that site for the transcripts, not the editorials.

      • This was my conclusion, too. (This fellow also wrote the article I linked in my physical stores post of last night.) This guy isn’t putting his money where his mouth is–he’s putting his mouth where his money is.

        It seems to me to take a peculiar combination of chutzpah and wishful thinking to predict that Amazon, renowned as a marketing powerhouse, and fresh from at least a perceived victory in the Department of Justice agency pricing thing, is about to go from the top of the world to right down the tubes.

        Amazon has always plowed most of its cash right back into infrastructure and further development. That’s how it’s gotten as big as it is now. And most of Wall Street still seems to love it to pieces even though it’s not showing much in the way of profit per share.

        I would be very surprised if Amazon were to take the nosedive this fellow is predicting (and, obviously, praying for).

      • Speaking as someone who:

        1. Is also a Seeking Alpha contributor (as of about a month ago)

        2. Has been commenting here and at teleread for years

        I can tell you that isn’t entirely correct. The disclosure is legally mandated, but noone in their right mind believes a Seeking Alpha article “moves” a stock the size of Amazon.

        And Seeking Alpha screens the articles and sends you back for rewrites if they feel you are being intentionally inflammatory, or if your analysis isn’t up to snuff. Anyone can contribute- but all articles are vetted. Even if you choose to waive any payment (my most popular article on Amazon I wrote for free) you still have to get your article past an editor.

        The vast majority of contributors writing about Amazon ( myself included) at Seeking Alpha now believe it is a question of if, not when, Amazon’s stock will crash. And the commenters at that site- at least the ones that don’t appear to be sock puppets- almost all agree with that logic, for one simple reason:

        Amazon’s fundamentals (mainly valuation, but now also earnings and balance sheet) look HORRIBLE right now by traditional investing metrics and according to traditional investing dogma. The P/E ratio is over 300!

        Usually, when that happens, a crash follows.

        It’s as simple as that.

        Also, Motley Fool- which was Seeking Alpha before Seeking Alpha- appears to be forcing their authors to write constant, clearly BS articles pumping up Amazon. That doesn’t sit well with investors (even amateur ones) and we want a forum to counter the most glaring exaggerations. SA gives us one.

        The “insolvency” assertion is new. I can’t think of any other Seeking Alpha author that has actually stated in an article that they believe Amazon is going bankrupt, as opposed to the stock simply going down, or that it is an Enron-style accounting scam.

        But between you, me, and a tree- That’s what it looks like. The amount of cash on the balance sheet is plummeting and the contractual leasing obligations are skyrocketing. I think they could easily go bankrupt if these trends continue. And I think they’re committing massive stock manipulation to cover it up. “To good to be true” usually is. Amazon’s stock pattern looks like manipulation, the company insiders are selling large blocks of shares on a weekly basis, and Jamie Gorelick is on the executive board.

        But, mainly because I don’t want to get sued, and partially because I would instantly lose credibility if I was wrong about that, I don’t have the courage to say it that way in articles.

        Anyways, my point here is, he could be wrong, I could be wrong, Paolo Santos could be wrong. And we are all guilty of confirmation bias, and just plain being wrong, from time to time. But we are giving our honest opinions- there is no incentive to just make stuff up that you don’t think will happen.

    3. The author’s conclusion:

      “In that scenario, the business will arguably be heading for insolvency and the underlying value of the business will revert to a SOTP valuation at best. Based on the analysis above, that implies a share price of between $0-125, a fall of 50-100% within 4-6 weeks.”

      Amazon may have some challenges, but it also has a lot of excellent attributes and a very strong brand. Predicting the company will experience a massive decline ($0 stock price means it is out of business) by early November is not even worth considering seriously.

    4. While there may be ample reason to be skeptical of Amazon’s stock – the share price looks awfully like a bubble – this article is just cloud cuckoo land for short sellers.

      Seeking alpha can be a very useful site for getting info on companies and their stock, but as always with sites ‘selling’ info the motto is caveat emptor.

      The best positive case for Amazon is probably by Marc Gerstein, presented with some wit:

      A thorough case for the prosecution is this article:

      At the site the best known bear is Paulo Santos, who has written an avalanche of articles on the shortcomings of Amazon, real or imagined. They can however act as a useful counterweight for those who believe in Amazon the unstoppable, and Seeking Alpha as a whole is one of the few places where both pro and anti Amazon views can be rationally discussed – well, most of the time!

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