(Reuters) - Amazon.com Inc is launching a new business offering loans to some of its online sellers, a move that could boost the growth of its Internet marketplace while exposing it to potential credit risks.
The new program is called Amazon Lending and sellers on the company's marketplace have been sent emails offering loans from Amazon Capital Services Inc, a unit of Amazon, according to a merchant who received such an email from the company recently. The merchant did not want to be identified because Amazon has not announced the program publicly.
An Amazon spokesmen declined to comment.
I won't even begin to tell you how stupid this is.
Ok, I will. Amazon has a pretax operating margin of 1.17%. If it takes financing risk for sellers then it puts further margin pressure on its sellers and the unpaid open loan amounts come against that margin should they default.
This exact sort of strategy is what blew up Lucent during the Tech Bubble, and Lucent had an actual real operating margin, unlike Amazon!
Amazon is charging less than other unsecured financing options such as credit cards, but is taking unsecured risk. Note what one of their vendors said:
Getting a credit line from a bank has been difficult because lenders require a personal guarantee from Ozbo's main investor, Wood said.
Right, because the bank wants to make sure it gets paid!
For Amazon, on the other hand, they're just fine with making a loss so long as they get to make it up on volume.
What? You said the box was ticking? What could possibly be inside?
The day is coming when being short this overpriced, non-dividend paying, 15 times-book value and over 100 forward P/E pig is going to be the trade of your investing career.
Disclosure: Oh my what a corner this will be, and yes, I'm looking for it.