A $400 Target Gives Amazon
An Even Bigger Push Skyward
An INTERACTIVE JOURNAL News Roundup
Shares of Amazon.com rocketed Wednesday after CIBC Oppenheimer
analyst Henry Blodget lifted his long-term price target on the stock to
$400 from $150, spurring a rally in the already-euphoric Internet-retail
sector.
Mr. Blodget, who continues to rate the stock a "buy," said in a research
note that Amazon's shares recently passed his price target of $150.
In trading on the Nasdaq Stock Market Wednesday, shares of Amazon
rose 46 1/4, or 19%, to 289 in heavy volume. Meanwhile, the Nasdaq
Composite Index slipped 3.24 to 2009.36, while Morgan Stanley's
high-tech 35 index eased 1.48 at 775.42.
Mr. Blodget said early Wednesday that he
believes Amazon "is in the early stages of
building a global electronic-retailing franchise
that could generate $10 billion in revenue and
earnings-per-share of $10 within five years."
In his research report, Mr. Blodget noted that,
since he initiated coverage on Amazon three
months ago, the company has reported
third-quarter results that beat expectations and has become the largest
online music retailer only one quarter after opening its online music store.
The company has also continued to expand the types of products it sells to
include videos and gifts, and has introduced a comparison-shopping
service and the "GiftClick" service, which allows customers to send gifts by
clicking on the recipient's e-mail address.
Amazon indicated that the number of orders on the day after Thanksgiving
this year was four times greater than a year earlier, Mr. Blodget added.
In his research note, Mr. Blodget said he believes that while Amazon's
stock is "incredibly expensive relative to near-term expectations" and
"scary to buy," the company's long-term opportunity is large enough to
support a market capitalization much higher than current levels.
The analyst pointed out that Amazon's revenue is currently growing faster
than 300% per year. He added that the company's operating margins
could ultimately exceed 10% "if the promise of digital delivery of music,
books, software and other products comes closer to reality over the next
several years."
Mr. Blodget said he believes the adoption
of electronic commerce is lagging that of
online access by a year or more --
suggesting that the rapid growth of the
Internet over the past few years will drive
strong growth in online commerce in the
years ahead.
Mr. Blodget therefore believes that
Amazon's stock is in earlier part of its growth cycle than other high-profile
Internet stocks like Yahoo! and America Online.
Amazon has yet to prove that it will ever make money, which has led to
enormous controversy around its stock valuation. But Mr. Blodget
maintained that Amazon "will one day make a lot of money" and said that if
his aggressive growth scenario stays on track over the next 12 months, the
stock's upward momentum should not reverse itself.
Keith E. Benjamin, an analyst with BancBoston Robertson Stephens,
confirmed that the new target on Amazon was the likely catalyst behind the
e-commerce sector movement Wednesday.
He cautioned however, that online retail stocks "seem to be easily swayed
when there's any kind of news."
The analyst added that, while there's no way as yet of measuring the
potential growth of commerce on the Net, expecting such staggering price
growth, even from a sector leader, may be a little impetuous.
"Trying to justify a $400 price target is an irresponsible exercise in my
view," Mr. Benjamin said.
He was joined in that position by Lise Buyer, an analyst at Credit Suisse
First Boston.
"Why stop there?" she joked. While adding that she agreed with
Oppenheimer's assessment that the general direction of movement in
Amazon's shares would be "up and to the right," she said that she wasn't
convinced there was any rational basis for such a call.
"It is not realistic to say that any of us can see out that far with any degree
of accuracy," Ms. Buyer said. "No one should be confused that there's any
degree of certainty in a prediction of that kind."
Later in the day, Mr. Blodget said in a "clarification" that his new price
objective is a one-year -- and not a near-term -- target.
Mr. Blodget said Amazon, like other Internet stocks, is extremely volatile
and is like to advance in a "three-steps-forward, two-steps-back fashion."
He added that the stock's recent advance "looks a lot more like four steps
forward" and that he would therefore not be surprised to see a significant
pullback in Amazon's stock at some point.
In addition, Mr. Blodget said that because Amazon is a retailer, its
business model will ultimately resemble that of other retailers.
The company could therefore post a sequential decline in revenue in the
first quarter, which could cause a significant pullback in the stock since this
would be the first sequential revenue decline in the company's history.
"We would not, therefore, go hog-wild with the stock at current levels in
the expectation that it will go straight up from here," Mr. Blodget said. "An
investment in the shares clearly requires a strong stomach and a great deal
of faith."
The strength in Amazon's stock also lifted the shares of a number of other
e-commerce stocks Wednesday.
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