I know, bulls, I know -- this too is good news.
Wrong! Rear Echelon Revelations: Watch Out Amazon, BKS.com's on Its Way
By James J. Cramer
Can you buy puts on Amazon.com (AMZN:Nasdaq) and make money? I have been
loath to play any Internet name to the short side because I am a true
believer. Hence TheStreet.com. But I nibbled on the October put paper
Friday because of the Barnes & Noble (BKS:NYSE) deal. Here's why.
I love Amazon.com. I haven't been to a bookstore since I got my account. I
think I will always love Amazon.com. I have never been confused by the
notion that Amazon.com has a giant market cap. It is a loved stock and it
cannot be borrowed. (See my piece last time on what this means and why I
can't short Amazon common.) If you are reading this piece at night, I have
probably just been to Amazon and would have joined you for a virtual cup of
coffee in the military history aisle.
But this Barnes & Noble initial public offering will change the Amazon
stock for the worse, not the better. Because the BKS people are crafty and
know the game. When the roadshow for this IPO starts, even Amazon holders
might be panicked into selling. Here's why.
First, Barnes & Noble will visit 12 cities and speak online about how great
Amazon is while speaking off line about what a loser Amazon.com is. You
don't want someone out there going around the globe knocking your stock.
But it will happen.
Second, BKS has no desire to hurt itself with an online business, but it
wants to CRUSH Amazon, as any good competitor would. By off-loading BKS.com
it will have a vehicle that can really put it to Amazon on a price basis
with the expected losses being broken out to its BKS.com sub. It is almost
in BKS' interest for BKS.com to do poorly. In that it can hurt Amazon,
which is taking huge online market share, without damaging parent BKS'
buzz.
Third, BKS.com's IPO and subsequent stock will be like a giant ad fest for
BKS.com. I suspect that anybody who does not know BKS.com will have heard
of it by the time this deal comes public.
Finally, the creation of BKS.com might be just big enough to alleviate some
of the short squeezes are occurring in Net stocks. If you go back and read
my piece about how there are not enough Net stocks, I predicted that the
bankers would have to create a ton of new equities before you could see a
top in this group. Looks like the bankers are listening.
Can you own BKS.com for the long haul? Tough question. These IPO spinouts
of retailers from other retailers tend to be real dogs in the long run.
Most recently we have been hit by the ugly Carmax (KMX:NYSE) stick. But
price it right and anything can work. I made good money on the Kmart
(KM:NYSE) spinouts and got takeovers when Kmart ran into such trouble that
it had to raise cash.
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