How to get arrested (& create $00bns of wealth) Sharpfokus67
An equity story
This is an amazing corporate equity story. It’s a story about a company which challenged the norms of financial analysis, didn’t raise much money from investors, focused on cash flow, was supported by the government, paid back all the capital they raised & saw their share price surge to 2nd biggest in the world.
Negative net worth
IPO
Another amazing thing about this story is that it took place over such a short time. Amazon listed on the stock exchange in 1997 only a few years after starting. The IPO raised only $50m which is smaller than many Indonesian companies. They later raised another $100m but that’s all.
2002
Amazon was the definition of a growth company, they lost money as they expanded their presence. Cash flow was negative, profit negative & by 2002 the net worth of the company, the book value or equity, was negative $1.3bn. Many or even most investors & analysts were horrified. They thought Amazon was worthless.
Now
But since then, as the company grew very very fast, cash flow turned positive. Next net profit turned positive & so positive that equity was also quickly positive too. Today the net equity is worth $30bn & the share value surged to become the 2nd largest on the world after Apple. 2018, Amazon briefly overtook the whole Indonesian economy,
Cash flow
Not cash
The key to this success story is cash flow. Here in Indonesia most investors, probably most people, think cash is king, but it’s not. The value of cash erodes quickly especially in rupiah. Here investors try to offset this by holding assets, but that only protects & doesn’t grow wealth. It’s not cash or assets which is valuable, it’s cash flow.
This is an amazing corporate equity story. It’s a story about a company which challenged the norms of financial analysis, didn’t raise much money from investors, focused on cash flow, was supported by the government, paid back all the capital they raised & saw their share price surge to 2nd biggest in the world.
Negative net worth
IPO
Another amazing thing about this story is that it took place over such a short time. Amazon listed on the stock exchange in 1997 only a few years after starting. The IPO raised only $50m which is smaller than many Indonesian companies. They later raised another $100m but that’s all.
2002
Amazon was the definition of a growth company, they lost money as they expanded their presence. Cash flow was negative, profit negative & by 2002 the net worth of the company, the book value or equity, was negative $1.3bn. Many or even most investors & analysts were horrified. They thought Amazon was worthless.
Now
But since then, as the company grew very very fast, cash flow turned positive. Next net profit turned positive & so positive that equity was also quickly positive too. Today the net equity is worth $30bn & the share value surged to become the 2nd largest on the world after Apple. 2018, Amazon briefly overtook the whole Indonesian economy,
Cash flow
Not cash
The key to this success story is cash flow. Here in Indonesia most investors, probably most people, think cash is king, but it’s not. The value of cash erodes quickly especially in rupiah. Here investors try to offset this by holding assets, but that only protects & doesn’t grow wealth. It’s not cash or assets which is valuable, it’s cash flow.
Binaartha Online Trading
I don’t know about you but I like to do what I want, anytime I want, wherever I want. That’s true for my personal stock trading too.
This is why I’ve been using Binaartha Online Trading.
It belongs to my great friend Adi Hartono & is easy to use at home, in the office, in the car, on holiday. Anywhere.
Its also super easy to set up. Fill in this online form & they will get you up & running ASAP.
This is why I’ve been using Binaartha Online Trading.
It belongs to my great friend Adi Hartono & is easy to use at home, in the office, in the car, on holiday. Anywhere.
Its also super easy to set up. Fill in this online form & they will get you up & running ASAP.
Cash flow
Amazon realized this to such an extent they were willing to lose money to generate faster cash flow. But what’s perhaps not so well understood about this is the losses which many observed was marketing to gain customers. Once Amazon had customers they made money on the 2nd, 3rd & all future sales. That’s where the cash flow came from.
Front page
This is an important lesson. The company which is most willing to create sales by marketing itself the most will win. Wallflowers shrivel & die, Amazon’s amazing focus on cash flow led them to shift the cash flow statement which is normally at the back of the annual financial statements to the front, first page.
Capital pay back
Raise equity
Because they were making losses on cash flow & profits, Amazon needed to raise capital. They did this from both equity & debt as well as using short term notes to give them working capital. As mentioned they raised only $50m in the IPO then another $100m from the public markets. They raised another $550m from employee share options.
Raise debt
$700m of which $550m came from employees is incredible. Amazon raised $2bn of debt, keeping to a traditional 70:30 ratio of debt to equity. But that ratio is normally reserved for property & other ‘safe’ long term investments. For what was seen as a risky investment this much debt would seem to an investor today to be ridiculously high:
Pay back
It turned out the debt wasn’t high. Because it went into cash flow generation it was paid back within a few years. Amazon also switched from raising equity to buying back shares. They paid back all the original investors money. Then the government gave them tax credit equity too, because they had created so much wealth. Amazon’s net equity intake is negative...
It’s simple
This amazing story could never happen in Indonesia. Last week I asked OJK what they’d do if a listed company had negative net worth? They said the directors would be arrested. Plus our government taxes instead of incentivizes. But if you want to try to be worth $00bns....raise money from employees for cash flow, grow super fast, pay the money back even faster. Simple.
We will be on the lookout for any companies doing this in Indonesia.
Have a great week!
Sebastian
Amazon realized this to such an extent they were willing to lose money to generate faster cash flow. But what’s perhaps not so well understood about this is the losses which many observed was marketing to gain customers. Once Amazon had customers they made money on the 2nd, 3rd & all future sales. That’s where the cash flow came from.
Front page
This is an important lesson. The company which is most willing to create sales by marketing itself the most will win. Wallflowers shrivel & die, Amazon’s amazing focus on cash flow led them to shift the cash flow statement which is normally at the back of the annual financial statements to the front, first page.
Capital pay back
Raise equity
Because they were making losses on cash flow & profits, Amazon needed to raise capital. They did this from both equity & debt as well as using short term notes to give them working capital. As mentioned they raised only $50m in the IPO then another $100m from the public markets. They raised another $550m from employee share options.
Raise debt
$700m of which $550m came from employees is incredible. Amazon raised $2bn of debt, keeping to a traditional 70:30 ratio of debt to equity. But that ratio is normally reserved for property & other ‘safe’ long term investments. For what was seen as a risky investment this much debt would seem to an investor today to be ridiculously high:
Pay back
It turned out the debt wasn’t high. Because it went into cash flow generation it was paid back within a few years. Amazon also switched from raising equity to buying back shares. They paid back all the original investors money. Then the government gave them tax credit equity too, because they had created so much wealth. Amazon’s net equity intake is negative...
It’s simple
This amazing story could never happen in Indonesia. Last week I asked OJK what they’d do if a listed company had negative net worth? They said the directors would be arrested. Plus our government taxes instead of incentivizes. But if you want to try to be worth $00bns....raise money from employees for cash flow, grow super fast, pay the money back even faster. Simple.
We will be on the lookout for any companies doing this in Indonesia.
Have a great week!
Sebastian
