• Introduction: This is Really Happening
  • Revenues, Profits, Units & Capital Intensity: No Footnotes Needed
  • Conclusion: M&A or Just GIVE EM AWAY!

Introduction: This is Really Happening

In Kailash’s recent paper Amazon – Notes from Agnostics we effectively re-published readily available footnotes from the firm’s 10-K. The footnotes involved accounting changes and the use of capital lease and stock compensation accounting. Kailash made no definitive conclusions but merely reprinted Amazon’s own numbers which show the firm’s Free Cash Flow may be as low as $3bn and the business’ capital intensity had exploded.

While seemingly naïve the paper drew either admiration or vitriol. Despite merely being a reprint of footnotes it was, apparently, incendiary. This paper takes a similar if even more naïve approach: Kailash believes markets are at a point in the cycle where footnotes are no longer necessary. Valuation disparities in some situations have now become so radical the most basic data may tell a valuable story.

A recent article in Bloomberg2 noted that Elon Musk’s pay package, the largest compensation deal in history, “doesn’t seem that crazy anymore.” Like this paper, that article stuck to the facts. The key points seemed to be:

•     The recent run in Tesla’s stock has put its valuation above GM and Ford’s combined
•     If the stock moves from $88bn to $100bn Musk will net a staggering $346 million bonus
•     Musk’s compensation plan lays out a “…market value [of] $650 billion … that could net [Musk] more than $50 billion if all targets are met…”3

Figure 1 below shows the evolution of Ford & GMs’ market cap next to Tesla’s since 2011. As the Bloomberg article noted, at its point of publication Tesla’s market cap was greater than Ford and GMs’ combined. Kailash put the chart here simply to present the data.


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