Glenn, I'm hoping we get some good news from the FOMC meeting next week.
Amzn has rattled the market. My AOL took a hit too, even though the Time Warner shareholders approved the merger.
>PALO ALTO, Calif., June 23 (Reuters) - Dot-com companies suffered another major erosion of confidence on Friday when two of the industry's most respected analysts revealed new doubts about Amazon.com Inc. <AMZN.O>
The news stunned the industry, which has come to regard Amazon as a rare strong pillar in a field of crumbling Internet retail businesses. And because the cautious comments came from analysts who are famous for promoting the stock, they set off widespread alarm about the entire tech sector.
Over the past two days, both Mary Meeker of Morgan Stanley Dean Witter and Henry Blodget of Merrill Lynch have said they did not expect the online retailer's revenues to show any upside in upcoming quarters. They also said it was possible Amazon might not meet current revenue forecasts.
Most stunning was Meeker's wording in a brief note sent to Morgan Stanley's brokers in which, industry sources said, she wrote that the fourth quarter "will reveal whether Amazon is an Internet survivor or not."
As recently as three weeks ago, Meeker had had Amazon on a short list of stocks she liked, and had said the worst was over for top Internet companies.
Following the new warnings on Friday, Amazon's stock fell 8-1/8 to close at 33-7/8 -- less than a third of its all time high of $113 a share.
"When you get the company's two biggest cheerleaders pulling the plug, that is a problem. My guess is that they got wind of something bad," observed Bill Fleckenstein, who heads Fleckenstein Capital in Seattle and has a short position on the stock.
"It is not inconceivable that one day people could have real going concern issues with Amazon," Fleckenstein added, citing the company's steady losses and poor credit.
In another blow to Amazon, a credit analyst at Lehman Brothers on Friday described its credit as "extremely weak and deteriorating."
"From a bond perspective, we find the credit extremely weak and deteriorating, " Lehman said in the report, warning that Amazon.com risks running out of cash by the middle of 2001.
Seattle-based Amazon, which typically does not comment on Wall Street research, attacked the Lehman comments as "absolute pure, unadulterated hogwash."
"We are nowhere near running out of cash," said Amazon spokesman Bill Curry. "Anyone who understands the cash flow dynamics of this business knows this."
Curry noted that the company ended the first quarter with more than $1 billion in cash, and expects to become cash flow positive later this year.
He declined to speculate whether the company would need to raise additional cash before it became profitable.
And not everyone was alarmed. Most analysts noted that both Wall Street and Amazon itself have long been cautioning investors that the online superstore could not possibly sustain the breakneck rate of revenue growth it has enjoyed so far.
"This story has been unfolding for a while," said Bob Walberg, an analyst with Briefing.com in Chicago. "To the credit of (Amazon Chief Executive Jeff) Bezos, he has always been about the long term. Now there is a little bit more anxiety about the fact that they haven't turned a profit, but they have achieved a brand awareness that others in the business have not been able to. Long term the company will definitely be profitable."
Still, analysts acknowledged that as investors lost patience with Amazon, it was impossible to overstate the impact on other dot-coms.
"It really puts a nail in the coffin in terms of online retailers being able to raise additional capital in equity markets," said Greg Konezny, with U.S. Bancorp Piper Jaffray in Minneapolis. "A lot of these retailers from CDnow <CDNW.O> to PlanetRx <PLRX.O> to Drugstore.com <DSCM.O> need to raise additional capital before they can reach profitability and they are going to have to find sources outside of the equity market."
Those alternative sources of financing have also become scarce. Venture capitalists, who were the source of early-stage funding for many of these dot-coms, have distanced themselves from the sector, in many cases declining to provide second-stage financing to companies they initially backed.
On top of these problems are higher interest rates that will make it more expensive for these cash-strapped companies to borrow money, and signs of an overall slowdown in the U.S. economy, which is starting to slow consumer spending -- online and off.
Many of those companies most in need of cash showed little reaction to the Amazon news on Friday, having already dropped to all-time lows. But Amazon's woes did appear to push stocks of some other, more stable Internet companies lower.
eBay Inc. <EBAY.O> fell 4-5/16 to 53-7/8, Priceline.com Inc <PCLN.O> lost 3-1/2 to 41-13/16 and America Online Inc <AOL.N> was down 3-1/4 to 53-1/4.
And some of Amazon's harshest critics suggested the selling would not stop with the dot-coms.
"The more important question," said Fleckenstein, " is what does it mean for Cisco<CSCO.O>, or Sun Microsystems<SUNW.O>?
"If the Internet companies are having problems, the people who have been selling them infrastructure are going to have problems too."
20:44 06-23-00 |
