Amazon looks to world domination

While Best Buy comes empty-handed to a gunfight.

By Jim Cramer Nov 27, 2012 9:43AM

thestreet.com logo

Guy Crittenden PhotographerThe 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!

 

JimCramer's face

 

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.  

 

 

More from TheStreet.com

90Comments
Nov 27, 2012 9:50PM
avatar

"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."

 

Hey Fred and Barney... not all online retail takes away jobs, some creates jobs and is growing an economy that works. The era of faux-business or business using online to eliminate personnel and make inheritors rich, is fading away. People are buying toys online because retailers are using them as loss leaders to get you to buy something else. You know what? Their websites are mighty poorly structured for that. Small business has worked that angle and dangle things people really want instead of deep discounts and free shipping. Think it through... BIG is so desperate to get your business that they will go out of business doing so. Amazon isn't a profitable company, it's a profitable stock share seller. Wal-Mart will get two-thirds of it's online sale items back through the retail stores even with the restocking fee. I'd much rather sell less and make more margin, than to be the world's greatest and have nothing really to show for it.
Nov 27, 2012 9:41PM
avatar
I thought only Goldman Sachs could take over the world.
Nov 27, 2012 8:20PM
avatar
Think of this the next time you purchase something on-line... you are taking away the jobs of your neighbors, taking away money from your local schools, taking away money from local firefirgters and police departments, and lowering the value of your own home. People don't take any of this into account when they purchase something on-line instead of at their local retailer or small business. We (local businesses) are the one's who pay local taxes, and pay local employees who can pay local taxes, and support our communities. And that sales tax you're avoiding by purchasing something on-line, look at your state sales tax codes. You most likely are violating the law by not paying your sales and use tax on out of state purchases. Some things to think about the next time you decide to click on an item instead of supporting your neighbors.
Nov 27, 2012 5:00PM
avatar
Ha my first post on here is showing up on as the worst post, that's funny.  Well check off another item from my list of meaningless crap to achieve.
Nov 27, 2012 4:56PM
avatar

"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.

 

Nov 27, 2012 3:16PM
avatar

1 classic lady

 

ive ALREADY said...returning to right wing policies will collapse the market

Nov 27, 2012 3:09PM
avatar
"I was just thinking..."

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.
Nov 27, 2012 1:54PM
avatar

the market has soared from 6000 to 13000 because of bernanke

averting a depression.....the market won't collapse until the right wing policies are

reinstated

Nov 27, 2012 1:18PM
avatar
Did a cost analysis on a wholesale pot business in Washington once they start issuing licences sometime in 2013
  Retail Price $340 an ounce (set by State by closely matching supply and demand), 
wholesale before tax $160, 
break even point $27 an ounce.  
Start up costs $50,000. 
Running costs $50,000 a year, mostly for the warehouse lease and power. Labor required per day 6 hrs since watering and lighting are automated
 The best part is a stable price thanks to State intervention. Too much supply lowers the price and therefore the tax revenues so they will limit the amount allowed to be grown. An oversupply could also be sold taxless on the black market since the retail outlets would be glutted without supply control
 IF it actually happens the people who get in on the ground floor on this are going to get filthy rich. A first ever in the world business opportunity awaits in Colorado and Washington.

Nov 27, 2012 12:42PM
avatar

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
Nov 27, 2012 12:34PM
avatar

 Warren Buffet quotes of the day on the Fiscal Cliff:
 On uncertainty. "The outcome in 1941 was uncertain-- we just didn't know it" (we assumed the outcome was destined to be in our favor so we forged on without any uncertainty at all. Attitude in other words is everything)
 "The fiscal cliff was made by men and it will be solved by men." It is not part of the structure of things

 In the end, to anyone with a sense of adventure, the uncertainty of it all is, in itself, the very reason to go forward with the Plan
Nov 27, 2012 12:24PM
avatar

 Jim promoted Apple big time when it was at an all time high of 200
 Hey said buy into Facebook at 21.5

 Think of the bundles that could have been made on a volatile stock like Facebook in its short history if you had shorted and then played the dead cat bounces perfectly. I bet at least 100%
Nov 27, 2012 12:20PM
avatar
 I was just thinking the same thing! AMZN could be a $1000 stock someday if they grow to be the world's single largest supplier of merchandise. This is after all , a 21st century Global economy. They can repeat the pattern everywhere

 The main fear now for the brick and mortar shops is that people will merely go to their stores to look at and feel the actual item and then shop on line to get a better deal--- right from their stores on a mobile device!
Nov 27, 2012 12:06PM
avatar

 

I suspect we'll go over the cliff.  The President and Congress are all shorties and January will be a big payday.

 

 

Nov 27, 2012 11:55AM
avatar
Amazon is one of those stocks that will double in 5 or 10 years.
Nov 27, 2012 11:48AM
avatar
Amazon is disrupting the food chain , this must mean that home delivery business will gain,so teach your children to drive a truck,or gamble like Jimmy, prognosticate, and write books  . seems to work out for some , The cliff wil hurt some ,but some will make a buck . These flatulance are all just equaling pressures in the atmosphereic condition   , but will birds of a non feather flock together  ? , The big bomb has not gone of yet , so screw fear ,keep riding the middle and don't get bucked off the bull.
Nov 27, 2012 11:08AM
avatar

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?

Nov 27, 2012 10:54AM
avatar

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. 

Nov 27, 2012 10:48AM
avatar

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.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

118
118 rated 1
270
270 rated 2
472
472 rated 3
714
714 rated 4
624
624 rated 5
608
608 rated 6
623
623 rated 7
445
445 rated 8
319
319 rated 9
125
125 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BMYBRISTOL-MYERS SQUIBB CO.10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.