Amazon.com, Inc. (AMZN) Message Board

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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 226.99

-1.1%

Dec 8 3:59 PM EST

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To: GST who wrote (128937)	7/24/2001 5:45:49 PM
From: Rob S.	Read Replies (2) of 164684

I agree . . sentiment for AMZN is hardly bearish. I think it's brazenly optimistic. Just look at what has transpired over the past few years: Analysts had no way to judge Internet companies and no way to build valid models so they conspired with their investment banking buddies and built up a business premise that went something like this; "this is a pure-play on the growth of the Internet. Sales are not dependent on brick and mortar limitations. Amazon can efficiently take orders from consumers and fulfill them through distributors (Amazon's early mode of operations)." Then when losses mounted even faster than sales the story line evolved to; "Amazon is building warehouses and will reduce their costs to drive up margins. Because they are the industry leader and are building long lasting value in their name brand, the long term profits will be abnormally high for a retail business. Amazon is defining a new paradigm separate from the normally low margins and profits found in retail." But when Amazon built out it's warehouses and service facilities and tried to rapidly expand overseas, losses multiplied like rabbits in a lettuce patch. So, the bullish ANALysts like Mary Squeeker and Henry Bloodlet, manipulated their thinking over to something like; "Amazon has established itself as the Nordstom's of the etail sector. They have clearly established bran recognition and loyalty that will reap benefits for years to come. While the short term scenario looks tarnished, the long term picture hasn't changed (our brokerage set 'em up and bilk 'em dry and we collect out $14 million bonuses, ha, ha, ha . . . let the investors who bought our bunk rot while we nurture out tans!). Finally the Anals changed their spiel to "while the stock has come down 80% from it's highs we now think it has become a good value based on expected improvement in margins and long term profitability. We expect bond holders to be paid off eventually on the huge profits that will come because of a reduction in expenses." What ANAlysts missed from the start was any proper appreciation for the costs of doing business on the Internet. where they had no solid information to guide them they simply filed in the blanks with naive or blatantly false assumptions that were guided more by their firms greed than by any realistic understanding of how businesses may operate in the new climate. What makes this so callous of a misstep was the fact that any idiot could have gotten to the bottom of it (and many on this board did). The highly paid brokerage pimp analysts has little motivation to dig out the basic business text books or run a reasonable risk analysis. The fundamental flaw in the conjecture that Amazon had a valid business model has ben clearly proven: the cost of employing the people needed to build and maintain an ecommerce business dictates higher expenses than a traditional brick and mortar operation. If ecommerce is to succeed it must be with a ruthless attention to costs. Also disproved is the idea that "paying now to build brand loyalty that will reap profits latter" is valid. Amazon paid for and got a lot of recognition through television, radio, and Internet advertising and promotions. The problem has clearly been shown by the fact that as Amazongonenutty.com cut back sales and promotion expenses sales have dropped off dramatically. This would be OK if not for the fact that Amazon accumulated a huge debt structure that is bearing down on them with large interest expense and looming pay back. The debt was committed on the premise that the business would scale to such a large size that payment of interest and principal would be affordable. But because demand has proven to be elastic with advertising and promotion budgets, the ability to increase margins while maintaining or growing sales has been clearly shown to be an erroneous assumption. Amazon is trying hard to get to profitability or at least to get to the point where investors gain confidence that Bezos and fellow Amazonians have their feet on the ground. It is amazing that anyone now thinks that these childish plans are credible. Amazon will no doubt survive through the glorious Christmas season and might even see it's stock again inspire madness, but the flaws in ANALysts glowing assumptions are now open to anyone with eyes willing to see them.

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