Amazon.com, Inc. (AMZN) Message Board

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

AMZN 222.69

+0.1%

3:59 PM EST

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To: John May who wrote (179)	9/6/1997 7:37:00 PM
From: Alomex	of 164684

<< What do you think of AMZN's chances of achieving a profitable business? >> They will be profitable, barring any major screw up. The question is if they will be profitable enough to justify an $800 million market cap. Let's do the math. If we work our way backwards with a P/E of 25 that means they need yearly profits of $32 million dollars. Considering the narrow margins of the industry (3 to 5%), Amazon needs yearly sells between $650 million to $1 billion dollars. It will take them anywhere between 4 to 12 quarters to reach that goal. A rule of thumb is that if it'll take more than five years to justify the valuation run away from the stock (or short like mad, if you are into that, e.g. Iomega at $50 or Netscape at $160 ). On the other hand, three years or less is quite alright for a rapidly growing, solid company. The ones that fall between 3 and 5 years of steady future growth should be judged individually and very carefully. Amazon clears this rule of thumb (3 yrs or less). Plus it is very well positioned. If they execute properly they will become a major international force in the book business. In this forum I mentioned some of the weaknesses of Amazon, such as not owning a warehouse or its international shipping rates. As I said, I consider it bullish that management acted on the first one in a short time span. Let's see what they do about international shipping rates. As their business grows, they ought to be able to cut better deals with UPS/DHL/Fedex/TNT and pass on the savings to customers, international or otherwise. Personally I don't own Amazon stock. I'm waiting for next quarter's figures, the first ones under B&N competition.

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