The Digital Skeptic: Why Amtrak Makes Sense After Amazon

NEW YORK ( TheStreet) -- After Jeff Bezos gets all the public relations mileage he can out of scooping up The Washington Post, he might want to consider buying yet another aging U.S. brand struggling for an identity in the digital age: Amtrak.

Because, let's be honest, here's a business Bezos should find pretty darn recognizable. Even the fastest whistle-stop tour through Amazon ( AMZN) and Amtrak's annual financial statements will reveal how both are nothing more than money-losing, taxpayer-subsidized transport networks stuck in the awful business of overpaying their engineers.

Size does not matter
From a financial analysis perspective, there is of course, a serious difference between Amazon and Amtrak that blinds many to the similarities between the country's largest online retailer and its largest overland passenger railroad: size.

Last year e-tail giant Amazon reported $61 billion in revenues, up an impressive 25% or so from the $48 billion it made in 2011. Amtrak, whose official name is the National Railroad Passenger Corp., reported just $2.9 billion in total revenues -- up about 6% from $2.7 billion in 2011.

But once past this contrast of scale, the posture, profits and troubling issues each face are eerily similar.

For starters, both companies have a freakishly similar, blithe approach to profits. There is Mr. Bezos' zillion-times-quoted line from a Harvard Business Review interview this year about how "Percentage margins are not one of the things we are seeking to optimize."

The two execs who run Amtrak, President and CEO Joseph H. Boardman and Chairman of the Board Thomas Carper, speak with a similarly blurry vision of making money in their annual letter to investors. "We generated enough revenue to cover 88% of our cash operating costs," they wrote.

Or said another way: "It's the absolute dollar-free cash flow per share that you want to maximize," Bezos said.

Profits?! We don't need no stinkin' profits
The investor boogie man looming here in the dark, of course, is that as much as these CEOs and the Wall Street sell-side analysts who back them like to pretend otherwise, these kinds of free-cash-flow analyses simply do not jibe with Generally Accepted Accounting Principles.

"'Free cash flow' does not have a uniform definition, and its title does not describe how it is calculated," read a Securities and Exchange Commission guidance release titled, not surprisingly, Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures.

That means that what all this supposed "free cash" is worth is anybody's guess. And if investors are brave enough to cast even a nominally skeptical eye on both operations' free cash performance, disturbing similarities emerge.

Namely: Amtrak and Amazon burn money.

Of the $2.9 billion Amtrak made last year, nearly $2 billion was incinerated to pay its pricey engineers and network operators, with another $2 billion or so going up in smoke keeping its network operational. A similar forest fire of money is ripping through Amazon. During the same 12 months, of the $61 billion it made in sales, Amazon torched $60.4 billion in operating expenses, then lost enough to report a $34 million loss for the year, mostly paying interest expenses and taxes keeping its network operational.

Now, I get the free-cash upside argument for Amazon. Yes, if you tinker around long enough with operating earnings and working capital and back out cash payments, taxes, fixed fees on capital and other cash costs, between its Web market share and brand power Amazon certainly has the cash oomph to compete.

But believe it or not, friends, so does Amtrak.

Go to Page 68 of its annual disclosures and you'll see that cash and cash equivalents -- which, by the way, is the actual GAAP measure for free cash -- jumped by something crazy like 66% last year over 2011.

Amtrak's ridership is growing, and in many ways it has never run a better system.

The Uncle Sam of Amazon
Finally, we pull into the ultimate final investor diss: the taxpayer subsidiaries. Amtrak, at least, levels with the world and admits on Page 84 of its annual statements that, as of 2012, it got a direct cash infusion of $1.4 billion from Uncle Sam.

No such tax mea culpa is anywhere near Amazon's financial statements, as far as I could find. But the damage done to all our pockets is easy enough to total up. Assuming a national average sales tax rate of 6% on the $61 billion of last year's total sales, that's an implied combined state tax subsidy of about $3.6 billion.

Or about the deficits of states such as Ohio, Florida and Connecticut.

That all mean, friends, for all the flash and dash of The Washington Post deal, the Internet has pulled into this exact dank, sad terminal station: Nothing can change the fact that Amazon and Amtrak have much more in common than the first two letters of their company names.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.