Robert Olstein

Robert Olstein, Olstein Funds Chairman, CEO & CIO, explains why good companies that are looking at revenues are “going to end badly,” including Amazon

Transcript:

it’s out of control again. this is the latest — the music’s changed, the dance is the same. really? so this is going to end badly. it will end badly, even the amazon, out of control, linkedin out of control. good companies. it’s the — they’re looking at revenues. you can’t give revenues to investors. look, you got the macy’s and the duponts, and you know on strategy session, we did macy’s back at 19, still a buy at 50. we still own it. a company generating 10% free cash flow. are you telling me, if this was a private company, john deere, you can get $3 billion a year in income, $30 billion market capitalization, and you got salesforce.com, and they’re still talking about deficit twos years down the road? this is unrealistic. it’s amazon, linkedin, all of the companies are great revenues, but you have to produce free cash flow. you don’t? the valuation heads south. you can substitute pets.com. drkoop.com. we sat there together. i remember on squawk box, a guy had 100 million in sales and he went public at a billion. i said to him, how can you justify a billion market cap? this is back in 2000. and the guy says, you don’t understand. bob, before we came on camera, we were chatting in terms of — you don’t obviously own these names. the performance is unrealistic. it’s amazon, linkedin, all of the companies are great revenues, but you have to produce free cash flow. you don’t? the valuation heads south. you can substitute pets.com. drkoop.com. we sat there together. i remember on squawk box, a guy had 100 million in sales and he went public at a billion. i said to him, how can you justify a billion market cap? this is back in 2000. and the guy says, you don’t understand. bob, before we came on camera, we were chatting in terms of — you don’t obviously own these names. the performance is what this year? up 32% in one fund and 37%, and five-year compound sd over 20% a year with boring stocks. dupont, ge we own. we bought it down there. boring stocks. and there’s enough studies that say boring stocks win. look at the on-screen, deere versus cisco. 1999, you buy cisco. cisco quadruples sales — right. john deere only triples sales. it’s a four-bagger on deere, and you lose 50% on your money. the social media stocks, my prediction is, the next five to ten years, you make nothing and probably lose a lot. this is an incredibly interesting chart, because, andrew, a lot of people reporting last night, cisco, at a time when people are valuing businesses on revenues, and you heard martin franklin say it, buying on free cash flow yield, what’s the performance, the cisco versus deere, past 13 years. four bagger, cisco you lost 15%, and they quadrupled. you have 53 there. it was above 100 — is this tech at large? do you believe this of tech across the board, or soc l stuff? no, no, no. we look at — we differentiate freak — we’re talking social media. you talk about free cash flow. cisco is getting down now to a point whereas probably getting real interesting. now they’re overreacting to the latest quarter. everybody in it now. 80% of the trades is electronic. nobody cares about free cash flow. i’m extinct. tesla? oh, my god. that’s another — but at least they have a business model that may work. but how do you value that company worth $25 billion? did you mention on air what the amazon guy said — yeah, you listen to the amazon guy — it wasn’t bezos. he’s very honest, bezos. he said, i don’t care about investors. and i would fire, my analysts walk in to me, buy amazon, i’d fire them, and it was a triple — you don’t think amazon could flip the switch at any point and the margin goes up and all of a sudden, making money like crazy? in1999, the citibank analyst said amazon’s revenues would be $46 billion in 1999, and their earnings will be $8 billion. this is ’99. he hit it to the penny. they did $46 billion in sales, they’re still no cash flow, no hope of any cash flow. if they — the only way to get flash flow in amazon now is to lower prices — i’m sorry, raise prices. you raise prices, you know what happens to revenues? they’re very, very -‘rthey- e shifting. they could raise — i think it’s a nice, sticky business. you would still be in. but watch the competition across the internet. listen, amazon is a retailer. of course, now they’re into food, fine art, they’re into the cloud. tv. trying to control the world, okay? so let’s say amazon does 6% margins, which a retailer, that’s a great margin for a retailer, on $80 billion in sales. that gives them earnings of about $7 a share. does that make a retailer worth 50 times earnings? look, they’re already 80 billion in revenues. their growth is going to slow down. bob, let me — let me jump in