Since Monkey lost most of his bananas and is now on a pure leaf diet for the foreseeable future, he’s really thinking as hard as his small brain allows about Infinera the company and a comparison to Amazon popped up in his day dreams of a $22 INFN price tag.
Amazon doesn’t have earnings either. But they have cash flow. Which means human people want what they’re selling, and they’re buying it, whether its corporate buying in the data storage space, or whether its prime memberships, or even books and dog food (dogs are soooo lazy they need to be fed. Try living in the jungle for a day, Fido!) But instead of holding the profit, Amazon is continually reinvesting in the business to widen its ever gargantuan moat. And quarter after quarter revenue goes up. The profit can come at any time and we have proof and it’s why profit is not the only game in town, especially if you’re in it to win it. And the share price reflects this––investors trust that the business is gaining in value based on revenue and business moat.
Infinera, meanwhile, doesn’t have much of a profit either. But nor does it have increasing revenue––or not nearly as much as the story says it should be increasing. So the question is why?
This takes Monkey to the following assumption that maybe is so basic we forgot to examine it thoroughly: everything for Infinera depends on bandwith demand in some shape or other. But the assumption has been that demand for bandwith growth is irrefutable and essential in today’s Internet world.
But how essential can it be if we have customers constantly delaying their spending? Feel me?
If it was really essential, then companies would buy it because, by definition, they coudln’t afford not to. But in our case, companies obviously can afford not to buy, and they don’t. Or not nearly as much as the assumption is that they should. So maybe we’re wrong about the entire premise? Maybe bandwith expansion and speed and all the fancy parts are nice to have, but not required and just because Infinera parts would be lovely, the network weenies can get by a lot longer on the rusty stuff than we thought. And they do. Meanwhile, Infinera has to keep spending like wild hyenas just to make sure the gadgets stay the shiniest, further eroding the little profit there is. And on and on we go, year after year after year. So that’s the mean Tiger case (Monkey saw the Jungle Book and the Bear is a good guy in that there yarn, so live with the shift in market metaphor.) Can someone at least prove the mean tiger case to be unequivocally false? That would be a good start.
We all want bananas, but sometimes nuts is all we get.