I just got off the phone with Greg Heberlein, Seattle Times Senior business section editor. Heberlein has followed Amazon.com, RealNetworks and some other internet companies here in the Microsoftland. We talked about the recent earnings (loss) report and conference call and about internet stock craze in general. Greg has been covering companies for over 20 years and said that the internet stocks are not being driven by fundamentals but by greed and fear. Greg thought that the way the internet stocks are reacting was "just like what I have seen in micro-breweries and other once hot sectors." Some of you may not be familiar with the micro-brewery craze of a few years ago but it was THE hot stock area in the NorthWest. RedHook started it out by going public and quickly moving to astronomical multiples similar to where Amazon.com is trading now. Soon wineries and breweries all over the Washinton-Oregon area were going public or out for blue-herring offerings. "Buy the beer and buy the company" was the slogan of the day. You literally had companies giving away a case of beer or wine if you bought stock in them. Many of these companies never achieved profits (except for the insiders and brokers). They shot up 10X, 20X, or 50X there intrinsic value for a few months. When the results proved unable to meet expectations, the stocks plumeted or went completely out of business. Another recent example was Ride Snowboard. Ride was one of the first companies to capitalize on the snow boardng craze. It went ballistic on high expectations that its early name recognition would ride at the top of s.b. growth only to crash down to near bankruptcy just several months later.
Heberlien said that the stock craze is no different with Amazon.com. although he has visited and interviewed the company and done a few articles on it, he has concluded that speculators are not driven by fundamentals or anything else except the greed to strike it rich quickly. He asked me if I was short on the stock, which I admitted, and wished me luck in figuring when it would move down. Greg said, " . . no, don't get me wrong, it will move down, I just wouldn't want to try to guess exactly when. You've got more guts than I do in shorting it." I responded that it might not be "guts".
Greg said that "Many of the internet companies won't be around at all in three to five years. I don't know about Amazon.com. It may still be around but will be worth a lot less than it is now . . I mean $6.5 billion? That's got to change."
We also talked about what analysts are likely to say about the conference call. Greg warned, "Don't expect the companies that under-wrote Amazon.com to come out with sell recommendations. . . it just won't happen . . they have a vested interest in maintaining the stock price at high levels." He said that they may issue holds at worst but that was not very likely "You very seldom see an under-writer like, I believe Hambrich and Quist and Shearson Lehman, issue a sell on the companies they sponsor." Amazon.com has three major brokerages as underwriters according to Greg. When they do issue holds, he agreed that they would take the time first to get their own portfolios in order and consult with their clients.
I don't know if Heberlein will do another article on Amazon.com. One was done a few weeks ago which pointed out that they were experiencing higher costs, difficulty hiring skilled people in the hot Seattle labor market, and that growth was unlikely to continue at past levels. I guess he feels that if speculators are foolish enough to throw money at Amazon.com while at this level that they only have themselves to blame when it inevitably crashes. |
