JONO'S BULL'S-EYE: Amazon's Bubble Will Burst
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Jono Steinberg (12/17/98)
It looks like a dose of sanity has finally arrived on Wall Street.
Shares of Amazon.com (NASDAQ: AMZN) are currently down $27 to $262 after yesterday's enormous $46.25 jump. In fact, Amazon's stock broke the $300 mark yesterday. The euphoric go-go response by investors was spurred by Amazon's price target being raised to $400, from $150, by CIBC Oppenheimer analyst Henry Blodget.
Well, I'm sorry to spoil the fun. But you can tell people that you read it here first: Amazon's fourth quarter will disappoint. Fourth quarter revenue will not be enough to justify the stock's lightning-like rise. In fact, Amazon's losses will widen in the fourth quarter. It's funny. Even Blodget isn't bullish on the fourth quarter. In his Dec. 16 report, he wrote, 'We raised our price target for one reason only: the stock had surpassed our prior target and we wanted to convey our belief that there is still long-term upside for the shares. We did not raise it because we think Amazon.com will have a particularly strong Q4.'
There will also be a major change in perception in terms of how Amazon is seen by investors. The company is selling commoditized products. You can buy the same stuff at Barnesandnoble.com, Borders.com, Booksamillion.com and elsewhere. In addition, software that allows people to comparison shop will only work to the detriment of online retailers like Amazon. The software, however, will greatly benefit the people who do online shopping.
Back to the Oppenheimer report. Blodget does have a rationale for justifying a $400 price target. It wasn't just pulled out of a hat. He used a 40 multiple on 2004 earnings of $10.00 per share and a revenue projection of $10 billion, according to the Wall Street Journal. The problem is that, aside from making big assumptions that stand a good chance of not coming to fruition, Amazon is increasing its losses as it takes in more revenue. Unless it changes its business plan, more pain lies ahead for Amazon investors.
Here's one more excerpt from Blodget's report. 'It is likely that Amazon.com could post Q1 revenue that is sequentially down from Q4. Because this would be the first time in history that this happened, we believe the market could well perceive it as a negative, causing a significant near-term pull-back.' Don't cry Amazon longs. You were warned.
From Individual Investor.com |
