The internuts are fun and are supporting a lot of us.
One wonders where it ends. I was startled when amzn went up over 50 points on Wednesday (almost made TLC change his alias <G>). Part of a WSJ article I just read...
When Merrill Lynch & Co. speaks, the market usually listens.
Such was not the case Thursday, however, as word leaked out onto Wall Street that Merrill Lynch analyst Jonathan Cohen had set a $50 price target on Amazon.com -- even as the shares flirted with $300.
Mr. Cohen's estimated that the shares would be fairly valued at about one-sixth of its current level and had harsh words for the company's business model, but the result was only a 4% dip in the stock. On Friday, Amazon's shares continued to march higher as if nothing had happened, and they ended the week up $63, or 28%, at $286.
"The market is very sensitive to bad news, but not to naysayers," says Scott Ehrens, an analyst with Bear Stearns & Co.
That may be the answer to why investors shrugged off Mr. Cohen's warning. Or maybe it was something else. Like exuberance over the drumbeat of reports from Web sites and retailers and market researchers that more and more consumers are eschewing rugby scrums at the mall to shop online? Irrational exuberance? Millennial fever? Has day trading become such a national sport that people are buying Amazon stock certificates for all their loved ones?
Or did the market conclude that Mr. Cohen was just wrong? His dire prognostications were preceded on Wednesday by an exuberant assessment from CIBC Oppenheimer's Henry Blodget -- known, ironically, as something of an Internet bear -- that Amazon's shares were bound for $400 over the next 12 months.
Where Mr. Blodget said po-tay-to, Mr. Cohen said po-tah-to. Mr. Blodget predicted Amazon was "in the early stages" of building a franchise worth $10 billion a year in revenue and earnings per share of $10 within five years. Mr. Cohen didn't look that far out, but warned Amazon needed to achieve $3 billion to $4 billion in revenue for a paltry 5% to 6% operating margin.
Mr. Blodget looked for technological advances to increase those operating margins, eyeing the promise of digital delivery of music, books, software and other products. Mr. Cohen's prediction: Investors will take a hard look at Amazon's cost structure after the holidays, and adding new product lines will likely only add to the losses. And as if that weren't enough, he complained, nobody he knows uses Amazon as their home page.
Merrill is certainly one of the most influential brokerage houses in the world, but perhaps investors may have shrugged off Mr. Cohen's advice this time because he's been negative on Amazon so long. Mr. Cohen has been recommending that investors reduce their holdings of the stock at least since early September -- when the shares were trading closer to $80.
Mr. Cohen is by far the most negative of the 20 analysts covering Amazon, and the only one who has the equivalent of a "sell" rating on the stock. Twelve analysts covering the stock have it rated either "buy" or "strong buy," and seven rate it a "hold," according to a survey by First Call.
Mr. Cohen isn't negative about all things Internet, though -- he does like portals. In April, shares of Yahoo! Inc., Excite Inc., Infoseek Corp. and Lycos Inc. surged when he initiated coverage of the companies with bullish comments about their businesses.
And just last Tuesday, shares of Infoseek jumped after Mr. Cohen made some positive comments about the test version of the Go Network, the company's joint venture with Walt Disney Co. and upgraded his short-term rating on Infoseek to "accumulate." (He currently rates Yahoo as a short-term "neutral," Excite as an "accumulate" and Lycos as a "buy," but sees all four portals as long-term buys. He sees Amazon, by comparison, as a short-term "reduce" and a long-term "neutral.")
Mr. Cohen noted that selling books is traditionally a low-margin business, noting that the likes of Barnes & Noble Inc. and Borders Group Inc. can sell books for less because of their set distribution systems and better economies of scale.
But so far, that hasn't mattered. Barnes & Noble did everything in its power to derail Amazon, including filing a frivolous lawsuit against it right before it went public, and predictions that it would whip Amazon with its own book-selling site were once a dime a dozen. But Amazon has remained atop the pile despite the fact that its book prices are indeed often undercut by others -- something the rise of comparison-shopping services has made readily apparent to Web surfers. Branding and customer service, it would seem, count more on the Internet than people think -- while real-world muscle counts much, much less.
"I'm not sure why it's become a focus," Mr. Cohen said Friday of the hubbub over price targets. "The more relevant story is the fundamental prospects of the company."
But whatever the rationale behind this week's warring Amazon price targets, fewer and fewer analysts seem willing to do what Messrs. Blodget and Cohen did.
Lauren Cooks Levitan of BancBoston Robertson Stephens is one of the analysts who have thrown in the towel on the idea of offering price targets at all -- although she has kept a "buy" rating on Amazon's stock.
In her weekly report on Internet retailers, Ms. Levitan cited the market's reaction to Mr. Blodget's $400 price target as one reason she stopped publishing a price target for Amazon a few weeks back.
"The challenge with pinpointing a price target higher than the current price is that one needs to see tremendous, albeit achievable, revenue growth and profitability, which is expected to take many years," she wrote. "Unfortunately, investors bidding stocks up to price targets seems to be creating self-fulfilling projections."
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