James Cramer, from "thestreet.com" on AMZN.....
Wrong! Rear Echelon
Revelations: Cramer Asks: Is
Amazon the Next Iomega?
By James J. Cramer
5/13/98 4:05 PM ET
Amazon.com (AMZN:Nasdaq): Faux Internet versus
Internet. Which one is it? Of all the intellectual
exercises out there, the true worth of Amazon.com
intrigues me the most because I am not sure
whether Amazon.com is the next Iomega (IOM:NYSE)
or the next unassailable franchise.
First, definitions. When I say next Iomega or son
of Iomega, what I am talking about is the
great-product-as-bad-stock formulation. Two years
ago Iomega had an unbelievable product and a proud
group of online sponsors. It also had vicious
detractors who knew that Iomega made a commodity
product that one day would have its margins cut to
shreds.
For a while there the bulls had it made in Iomega.
They had the shorts crumpling, the longs
tantalized and the bankers hooting and hollering.
This stock went up everyday as shorts scrambled to
find stock to be lent out and longs bid the stock
up aggressively. My hat is off to anybody who
stayed the course and got out at the top.
Now we have that same dichotomy in Amazon. Anybody
who has been to Amazon's site knows it inspires
immediate loyalty. I love it. I can't tell you how
many times I have bought the suggested books, just
put them right into the cart. I read the reviews.
I order. I get. For someone pressed for time, as I
always am, you just can't beat Amazon.
But we know, and it has not been disputed, that
Amazon loses 20 cents on every book it sells. We
know the company just borrowed a huge amount of
money to finance expansion. We know that what
Amazon offers is a commodity that could be
replicated (read stolen) by Borders (BGP:NYSE) or
Barnes & Noble (BKS:NYSE), old hands at this book
selling stuff. We know that software will be
invented that will price out books and send you to
the lowest price available on the Net.
To me that combination makes Amazon sound an awful
lot like Iomega. Unless Amazon wins some sort of
exclusive book seller contract or manages to buy
Borders or Barnes & Noble with its own inflated
stock, I don't see how this stock doesn't unravel
at some point.
But would I short it? Let me give you a couple of
quick tips on shorting. I never ever short a
company that could be on the cover of Business
Week as one of the best-run companies in America,
and Amazon is incredibly well-run. I also don't
short stocks that are hard to borrow, meaning that
you can't find stock that you need to do a short
sale (see archives on why this is important).
So in this case, my conclusion: I am an
intellectual coward. I know I should be short this
stock based on its business model. But I can't
based on its branding and its momentum.
Nevertheless, if it is an Iomega, we should see
its true colors rather soon, as the life cycle of
these kinds of stocks is about 18 months from
bottom to short squeeze to legitimate top. In
other words, much longer than the bears ever
believed possible -- but it's not ever long enough
for all the greedy bulls to get out.
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