March 11, 2001
Market Watch: In the War on Gibberish, a New Investor Ally
By GRETCHEN MORGENSON
the bull market of the 1990's, great towers of Babel, like the
one in the biblical region of Shinar, were erected by much of
corporate America. From these towers spewed the spin on company
performance or prospects that was needed to support swollen
Unlike the outcome in Shinar, where the tower builders were
thwarted by a confusion of tongues, now investors are the
frustrated ones. They must make sense of the blather
masquerading as financial information emanating from many
At last, though, somebody is pushing corporate America to
stop the gibberish and get back to the practice of dispensing
meaningful information on financial results. That somebody is
the New York Society of Security Analysts' Committee for
The particular tower of Babel under assault by the society is
the one that Jeff built. Jeffrey P. Bezos, that is, chairman and
chief executive of Amazon.com. The Internet retailer is the
subject of a forum sponsored by the society to tackle the issues
of confusing financial information facing investors today.
The forum, headed by Gary Lutin, an investment banker at
Lutin & Company in New York, focused on Amazon
because so many investment professionals were having trouble
plumbing the company's financial releases. "An assemblage of
Wall Street's best and brightest couldn't validate Amazon's
projections of cash flows based on the information it provided,"
Mr. Lutin said. So the forum was set up last June.
At first, Amazon executives agreed to participate. But when
forum participants asked the company for information they needed
to validate its financial projections, Amazon declined.
Last month, Ravi Suria, a convertible-bond analyst at Lehman
wrote a report predicting that the company would face a creditor
squeeze this year. Mr. Suria based his view on a traditional
analysis of Amazon's working capital, its current assets minus
current liabilities. He said Amazon's working capital would
probably go negative this year.
Because working capital is monitored by a company's creditors
and vendors, this raised the prospect of a squeeze. To the
press, Amazon called the analysis "silly" and denied that
working capital was linked to a company's ability to survive.
Clearly false. So last Thursday the forum sent a letter to
Mr. Bezos, as chairman of Amazon's board, seeking information to
back up the company's comments.
No support could be found, the letter said, for management's
public assertions that its suppliers would ignore established
standards of credit analysis based on working capital. The board
should state procedures for "defining, monitoring and enforcing
the company's policies regarding representations to investors,"
All of the forum members at a recent meeting believed that
the risk of a disruptive financial crisis within a year at
Amazon was high, the letter added. "Prudence requires
contingency plans for protection of shareholder value," and the
board should inform investors of such plans, it said.
Referring to a report in The New York Observer that L. John
Doerr, a prominent venture capitalist and Amazon director, had
called Lehman's chairman to try to suppress Mr. Suria's report
before it came out, the letter said: "The board is asked to
state its position regarding the rights of analysts to express
their views and regarding the rights of investors to hear those
Bill Curry, an Amazon spokesman, said: "We have received the
letter. We have nothing to say about it." The society is
fighting for the right of investors to accurate financial
information. High time somebody did.