Lex column

From June 2014 to September 2015, I wrote daily commentary for Lex, the FT’s business and finance column, about tech companies. Lex notes have been anonymous for nearly 70 years, but here are a few of my notes.

Amazon: capital questions (Feb 19, 2015)

Abracadabra. Amazon does not make much profit and, perhaps for that reason, likes to focus attention on free cash flow. This metric, which is not a GAAP measure, is usually calculated as operating cash flow less capital expenditure. That came to $1.9bn for Amazon last year.

A big number, with some sleight of hand: it understates Amazon’s investment programme and overstates its cash generation. This is because the company has increased investment by using capital leases to buy assets. Last year $4bn in assets were acquired under capital lease — five times the level of 2012. This is nearly on a par with capex, which stood at $4.8bn last year. Capital leases are like a purchase that is financed by the seller. Amazon says the increase in CLOs is mostly due to technology investment for Amazon Web Services (read: server farms). About $2bn in principal repayments fall due this year. Continue reading on FT.com here. 

Twitter: imagine all the people (Nov. 13, 2014)

The rules are different inside the tech bubble. Here, for example, is Silicon Valley’s Law of Large Numbers: if a company announces some large numbers that may appear in the future, its stock price rises.

Twitter, a year after its IPO, needed a boost. Its share price was back where it started. Management churn has been high, and profits elusive. So the market was ebullient when the company outlined its plan for growth, with new estimates for the “intermediate term”, or the next five to eight years. Imagine if user numbers doubled, ad load (the ratio of ads to tweets on each users’ screen) quadrupled, and if ads could be viewed by visitors who did not even have Twitter accounts. Then revenues might be $11.4bn (compared with $1.2bn today). High five! Twitter does not call these forecasts. They are “growth opportunities”. That speaks for itself. Continue reading on FT.com here.