Underscores a major difference between this and other bear markets - ridiculously high levels of debt, bankruptcies and defaults lingering post speculative mania.
A useful reform would be to limit the amount of debt a company can take on relative to its actual revenue, which gets more to the heart of accounting reform. The WB and IMF do it to the third world all the time. Corporate America is far less fiscally prudent.
Nomi
Amazon.com CEO Bezos Cuts Prices at Risk of Increasing Losses 2002-07-23 03:31 (New York)
Amazon.com CEO Bezos Cuts Prices at Risk of Increasing Losses
Seattle, July 23 (Bloomberg) -- Amazon.com Inc. Chief Executive Officer Jeff Bezos is making one of the oldest gambles in retailing, cutting prices on the expectation that higher sales will make up for smaller profits on each transaction.
``The answer is pretty clear,'' Bezos told a Bear, Stearns & Co. conference last month. ``It is one of the best ways to create a sustainable strategy.''
What works for Wal-Mart Stores Inc. and Dell Computer Corp., two moneymakers, may not work for the world's biggest Internet retailer, some investors said. Amazon.com, with $2.88 billion in losses since Bezos started it in 1994, has had just one profitable quarter. By lowering prices, Bezos may be increasing the odds that losses will increase instead of shrink.
``Right there is the $64,000 question,'' said B.C. Bowden, a managing partner at Dallas-based hedge fund Crown Capital LLP, who has sold Amazon.com shares. ``I don't think the margins are there.''
Investors will have a chance to gauge how Bezos's plan is working when Amazon.com reports second-quarter results later today. The Seattle-based company's loss will narrow to 6 cents a share from 16 cents a year earlier, based on a survey of analysts by Thomson First Call.
Those figures exclude a host of normal costs of doing business, a practice that Amazon.com helped pioneer in the 1990s and that doesn't comply with generally accepted accounting principles. Amazon's year-ago net loss was $168.4 million, or 47 cents a share.
Discounted Books
Amazon.com customers can save 30 percent when they place an order for books that cost more than $15. Bezos also is testing free shipping of purchases of $49 or more to see if consumers who balk at paying delivery costs will start buying.
These and other price cuts helped boost sales in the past two quarters by 15 percent and 21 percent, respectively.
The company's shares have had the biggest gain among Nasdaq 100 Index members this year, with a 43 percent rise, propelled by rising sales and the fourth-quarter profit. The shares yesterday rose 21 cents to $15.50.
The stock still are down 86 percent from the record of $113 in December 1999.
``They now seemingly have a decent business,'' said Darren Chervitz, director of research for new York-based Jacob Asset Management, which doesn't own any Amazon.com shares. ``But you look at the valuation and see investors are still expecting growth.''
Premium Price
Amazon.com's shares trade for about 123 times annual per- share cash flow. That compares with 16 times cash flow for Wal- Mart Stores Inc., the world's biggest retailer, and 41 times cash flow for Yahoo! Inc. owner of the most-used family of Web sites.
Bezos, who declined to be interviewed, owns about 29 percent of Amazon.com's stock and was paid $81,840 last year. He sold 950,000 shares in May for $15.5 million.
With much of the dot-com industry in ruins, some investors have stopped speculating the Amazon.com is poised for a bankruptcy filing. They still wonder how the company will make money quarter- after quarter. Amazon.com's one profitable quarter came during the holiday season, when the company earned $5.1 million, or 1 cent a share, on sales of $1.12 billion.
``It's not a survival issue anymore,'' said Paul Cook, director of technology investing at Munder Capital Management, which owned 121,000 Amazon.com shares as of March.
Low-Price Rivals
Amazon.com isn't alone in competing with low prices in the online retailing realm. Amazon.com's stock tumbled 12 percent in late June when Buy.com Inc., an Internet retail competitor that almost closed down last year, said it would challenge Amazon.com's prices by offering books for 10 percent less.
``I don't envy Jeff Bezos's position,'' said Ken Cassar, a Jupiter Research analyst. ``Amazon is in a difficult position in that Wall Street hopes to see growth at the same time it wants to see profitability.''
Amazon.com's shares have been pummeled when sales gains slowed. A year ago, Amazon.com shares fell 25 percent, their biggest one-day decline, after the online merchant said second- half sales would miss forecasts.
Over the past 18 months Bezos has cut costs by firing more than 1,000 employees and closing two customer service centers. At the same time, Bezos has wrung more productivity out of the company's 7,900 workers and negotiated lower prices from suppliers.
The King
There are other challenges for Bezos, who was labeled the ``king of cybercommerce'' by Time magazine when it named him Person of the Year in December 1999.
The company had $2.15 billion of junk-rated long-term debt at the end of the first quarter and interest expense eats up more than $30 million each quarter. He also must rebuild management as three of Amazon.com's top executives, including Chief Financial Officer Warren Jenson, depart the company this year.
``Why would you leave in front of a turnaround?'' Crown Capital's Bowden said. Bowden, while a fan of Amazon.com's customer service, has sold the shares short. Short sellers borrow stock, sell it, and buy back the shares at lower prices for return to the lender. They keep the difference.
Bezos's focus on prices may lead to profitability, said Pacific Crest Securities analyst Steve Weinstein, who has a neutral rating on the shares and doesn't personally own any.
``The issue still remains,'' he said, ``how profitable the company will be.''