5/4/98 S.F. Chron. B3
1998 WL 3913027
The San Francisco Chronicle
Monday, May 4, 1998
BUSINESS
STOCK OF THE WEEK
AMAZON.COM/ STOCK OF THE WEEK
Julia Angwin
-- Headquarters: Seattle
-- Business: Amazon.com sells books via its Web site. The
startup, which calls itself earth's biggest bookstore, claims to
offer 2.5 million book titles. It recently announced it would start
selling CDs and videos as well.
-- Background: Founded in 1995, Amazon.com was the first Internet
company to popularize the notion of selling books online. It still
hasn't posted a profit and faces stiff competition from Barnes &
Noble's Web site and online plans from other booksellers.
Nevertheless, the stock has been immensely popular on Wall Street.
Last week, the stock split after the company posted a first-quarter
loss of $9.3 million on sales of $87 million. It also announced it
would pay $55 million in cash and stock for three Internet companies
that will help it enter the European and video sales market.
-- 52-Week High/Low: $100 (4/98), $15.75 (5/97)
-- Friday's close: $94.50
Upside:
Steven Horen, senior research analyst at NationsBanc Montgomery
Securities in San Francisco
Recommendation: Buy
Amazon.com remains a clear leader in the Internet commerce space
in general and certainly within their product category online.
They've now become the third largest U.S.-based bookseller of any
kind and the company is turning in very impressive results.
I think there will be competition, but I also think it is
difficult for store-based retailers to shift into a direct marketing
style of business. They are very different businesses.
They also have lots of opportunities to trim their operating
expenses, particularly by automating the process of finding and
sending books to customers. It's highly labor intensive right now.
But when they do that, combined with continued growth going forward,
I think they're going to become a very profitable company.
Over time, maybe a couple or three years, I think there will still
be lots of upside on this stock.
In my mind, this is absolutely a long-term acquisition.
Downside:
Michael Murphy, editor of the Overpriced Stock Service, a
newsletter in Half Moon Bay
Recommendation: Short (He is betting that the stock will fall.)
There's an Internet stock mania going on right now and people are
going to get hurt when it blows apart.
Amazon.com is a good example of the mania -- it's got a $2.2
billion market cap even though it is losing a ton of money.
This week two analysts who thought the company would make money
next year revised their estimates to show even bigger losses.
It looks like this company may never be profitable. They can't do
it now with only one major competitor: Barnes & Noble. And the
competition is going to intensify with Borders Books and Music (owned
by Kmart) coming in soon and Bertelsmann AG (a German book publishing
giant) expected by September.
In addition, there's a real incentive on the part of publishers to
cut middlemen like Amazon out of the loop. Undoubtedly somebody out
there is working on software that will help consumers surf all the
publishers' Web sites.
To succeed, Amazon would have to cut its margins low enough to
prevent publishers from cutting it out of the loop.
Frankly, I don't think Amazon's long-term strategy works.
---- INDEX REFERENCES ----
COMPANY (TICKER): Amazon.com Inc.; Barnes & Noble Inc. (AMZN BKS)
KEY WORDS: BUSINESS
NEWS SUBJECT: High-Yield Issuers (HIY)
INDUSTRY: Limited Product Specialty Retailers; All
Specialty Retailers (OTS RTS)
EDITION: FINAL
Word Count: 521
5/4/98 SFCHR B3
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