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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 247.35

+0.4%

Jan 9 9:30 AM EST

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To: dave michaels who wrote (37726)	2/1/1999 3:06:00 PM
From: Rob S.	Read Replies (1) of 164684

We haven't seen the details of the conversion to know how immediate this effect would be. The prior debt offering delayed the ability to execute the options, something that is typical, and I expect there to be at least a 12-18 month delay on the new one. The loan duration is through 2009. --------- Blodgett's most recent report hedged the recommendation. I agree with his thinking that this is a good deal for Amazon, the company. This converts some of the high-flying stock valuation into subordinated debt. But this isn't such a great thing for holders of the stock at this ridiculous stock price. This piles on a huge amount of debt and increases the risks to shareholders. It is much more of a crapshoot. If the company runs into worse business conditions than the rosy expectations that shareholders dream of, then massive amounts of new stock may have to be issued to pay off the debts. If the company runs into difficulty earning significant profits (several $100s of millions per year) and eventually defaults on the loans, the debtors will be paid off first and the shareholders will end up with an empty bag. Maybe this will be viewed as an overly pessimistic outlook, that Amazon is very unlikely to come under that much competitive pressure or run into financial problems. Let's say that never happens. but let's say reality unfolds to be somewhere in between the rosy expectations and the doomsday scenario - Amazon runs into lots of competition and low margins and the profit it makes goes to paying off the huge debts it took to build them. It is very possible that sufficient earnings won't be there to justify the current stock price even ten years from now. What is left out of Blodgett's discussion is any assessment of "risk to reward". While it is nearly inconceivable that Microsoft, DELL, Compaq or Intel will be down in the dumps making nearly zero profits in five or ten years, with the massive debt structure Amazon is taking on, it is not at all out of the question that it will be just paying off debts for several years to come (or worse).

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