Bon Olstein, Olstein Capital Management chairman & CIO, discusses Amazon.com, Inc. (NASDAQ:AMZN)’s “Prime Music” service and where he sees opportunity in M&A. He also says Amazon is too focused on taking over the world.

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Olstein: Amazon Has ‘No Business Plan To Make a Profit’

Olstein – Amazon Has ‘No Business Plan To Make a Profit’: Transcript

first of all, i am a customer of amazon. the fact they had no business plan to make a profit. it’s spend, spend, spend, spend, spend. there’s no cash flow. $5 billion in sales to $80 billion in sales in the last ten years, still no free cash flow. no plan. they’re trying to take over the world. the whole business world. i’ve had had five companies in my career that have tried to take over the business world that are no longer here. they’re everything to everybody. they’re music stream. they’re phones. they’re supermarket — which are the five? that tried to take over the world? conglomerates. remember two plus two equal five? making a long story short, i predict a stock split over the next three to five years but you’re not getting more shares. if that’s the says, being everything to everybody is a negative, isn’t that what so many of these tech giants are doing today, whether it is Apple Inc. (NASDAQ:AAPL) or Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL)? i don’t see it the same way, kelly. these guys are just so far booked out in their business — they’ve said, if you don’t like our investment, become a customer. could he, bob, flip a switch, in effect, and turn this company from one that isn’t making a profit now to one that makes a big profit given the volume of sales? maybe he’ll make $6 a share. maybe he’ll make $8 a share. but it is not going to justify the $325 price. bob, i’m curious where you do see opportunity. aside from amazon. well, the acquisitions out there are just at the beginning. basically what you have to do is you have to go ahead and look for companies that — we invest at the olstein funds as private equity partners. we go in and look for companies that are generating huge free cash flow, have temporary issues — okay? they have temporary issues that are confronting them and showing that huge free cash flow. good businesses. people do not like to invest in companies that have temporary bad news because they want to get in the amazons, the twitters, the linkedins. that’s what’s working. but we believe we get real true value and that’s how our returns have been generated. what’s an example? a great example is techlt radata. they are growing at 5% and 10%. here is a company that’s capable of generating 7% free cash flow yields. they’re growing. they are. they do have some competition, but some of the competition is not competition. it’s really complimentary. here’s a company that maybe an oracle or Hewlett-Packard Company (NYSE:HPQ) who’s really stopped growing. can go in and use that free cash flow and that growth and pay a nice premium. your second candidate was petsmart, which was a company you say might well be a candidate for a private equity company to come in and take out. but i used to spend a lot of time at petsmart. i now buy my pet supplies from amazon. petsmart is an experience. okay? you go out there. people want to go in. they’re no longer growing at 5% and 10% a year but they are growing at 2% and 3% a year. here is a company that’s depreciation that’s far above their cap x. you are getting a 9% or 10% free cash flow yield, and in a 2.5% treasury market — okay? and that will grow at 2% and 3%. this is an outstanding company. they’re no longer growing at what everybody wants them to grow at, but, boy, what a great return for a private equity company.