Amazon looks to world domination
While Best Buy comes empty-handed to a gunfight.
The contrast couldn't be greater.
Here's Best Buy (BBY) with cash flow declining like lightning that might go private in part because a former CEO and founder can't believe how his mighty colossus has fallen. And on the other side is Amazon (AMZN), which on Monday raised $3 billion in a bond offering for general corporate purposes.
One founder, Richard Shulze, wants to lay on billions of dollars in high-cost debt to take advantage of the low price of Best Buy, with the hopes, no doubt, of bringing it public again one day in more forgiving times. I can only imagine the size of that coupon. Could they borrow at 5%, 6%, 8%?
On the other hand, Jeff Bezos is borrowing at three, five- and ten-year intervals for 0.742%, 1.301% and 2.601%. Those are Uncle-Sam-like rates for Amazon. Incredible given how, when Bezos was building Amazon, it was always considered to be one step from bankruptcy.
These two companies are mortal enemies. How many times a day do people sample at Best Buy, get hassled to take the warranty and be offered a price that may not be as good as Amazon's but has to be carried to your house by yourself? How many people pay taxes at Best Buy and don't pay taxes on Amazon?
Yet one is going to be armed with incredibly high-cost debt and the other is borrowing as if it has Triple-A credit rating. Best Buy's not bringing a knife to a gunfight, it's going empty-handed.
Of course there are some real ironies here. First, Best Buy would be taking on debt to go private and shrink. Amazon's taking on debt because there are so many opportunities to grow.
Best Buy might not make it if it does nothing. But who in heck would take down the debt that Schulz is offering? Perhaps the same people who took down the debt of the Tribune Corp. when it went private, the employees? That was the last time I heard about a deal that would be this dumb.
But Amazon? With that amount of capital and at those prices not only does it have a chance to put Best Buy in an early grave, it can go after almost every retailer that is burdened by high-cost debt and brick-and-mortar leases.
Without being bound by the credit required to finance inventory or the need to pay ever-escalating rents to Federal Realty or Simon Properties or Kimco for real estate, Amazon's just an overwhelmingly powerful opponent.
The additional funds will, no doubt, allow it to build out its infrastructure so you can get same-day shipping at probably every major urban area in the country.
Perhaps the most salient part of this bond deal? It's the fact that Amazon has opportunities that big. I bet if you asked most of the retailers in this country what they could do with $3 billion they would say "I don't know, we are pretty much everywhere we want to be already, maybe we can buy back stock."
They'd probably use it to buy back stock or pay special dividends. Amazon? It wants to raise money to take over the world.
At these prices it just might be able to do it!
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in the stocks mentioned.
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"Some things to think about the next time you decide to click on an item instead of supporting your neighbors." "Any angle I can use to get out of paying sales taxes is welcome in my realm."
"Brick and mortar might have themselves in a tail spin. Ever since the recession i noted a HUGE drop in selection inventory in stores. it used to be you'd see say 8 coffee makers or bread makers to look at. now stores show maybe 3 or just 1."
Very good. Gold Star post! There are thousands of cyber-pioneers who saw this quite a while ago and recognized the raw opportunity that neither Big Box Importers or Amazon could compete with. You have to think outside of the drop-shipped box and envision the "last known best" and what the industrialist who did it-- did to do it. The clock ticks... we remember and we know but we are slow. There are faster but they have no memory, it was before their time. Anyone can do what the Chinese did and do but only a few can do what they who made America did.
Always a dangerous prospect. I disagree entirely with your post. You cannot separate brick and mortar and online selling that easily. I don't see much of a future for Amazon because they are out there alone and that has only one inevitability... failure. Again... I'm not going to blow the anonymity of my ID by describing in detail the nuances of business models. Your typical brick and mortar is destined to fail because it's model dates back decades. Amazon merely took a fulfillment model and pushed it (taking massive losses along the way) to make itself an uttered Brand. Beyond that, there are far more efficient models making great strides and gains this holiday season without the loss component. I suspect 2013 to be more cyber and the best out in that space to be silent running. The msn article puppets tend to report the cream but what you really want is what's below that fluff that constitutes-- stuff. One tidbit... every traditional business required a bankroll; the best made businesses in cyberspace don't drop ship and had the best day of their existence yesterday. Amazon slots it's prospects, real customers have learned to use the Net for much more than to replace a brick and mortar store.
Imagine paying all that overhead just to be a showcase for a suppliers wares and then a company with no such overhead can therefore offer a much lower price and bags the sale on-line instead of you. I'd call that the very definition of frustration. AND the State gets no sales tax---- The Model is obsolete
Warren Buffet quotes of the day on the Fiscal Cliff:
Jim promoted Apple big time when it was at an all time high of 200
Let's see.......... Your car engine is smoking and worn out you have a choice.
1. Take money out of your pocket and have the motor rebuilt.
2. Drive it until it blows up and take money out of your pocket to replace the motor.
Both choices are financially painful.......... That is the Fiscal Cliff. Why do people think the market is going to SOAR if they resolve the dispute?
amazon can place warehouses next to all the large cities and widen their logistical support to insure fast customer delivery of products.
add computer part picking to ship products fast with the fewest people. get more contracts where the suppliers ship from THEIR warehouse so amazon holds little inventory.
use that warehouse wisely, all of the cubic feet - not just the floor space.
brick and mortar stores need to learn from amazon as well.
So gauge of business spending up, home prices up for 8 straight months, world stocks up today and another temporary Greek deal. USA stocks open down........
Looks like the cliff is the only issue right now, period. Fix it and the market will soar, fail and it will tank.
Side note:
They changed the bandages for Greece again, but the festering wound that is Greece will still require amputation from the Eurozone, but that's for 2013.
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