<< Shares of Amazon.com Inc., the largest Internet retailer, are worth 25 at most when its revenue, losses and gross margin are taken into consideration, Barron's reported in its ''Up & Down Wall Street'' column.>>
This should be good for a 10 point gain Monday (Ableson is always wrong -- he was predicting a market crash at DOW 6000)
btw, here's the full text:
Our all-time absolute favorite Internet stock, Amazon.com, ran into a little
selling last week. Up 19 points the week before, the shares lost that much and
then some -- over 25 points, to be exact -- on Thursday alone. For the week,
despite a gallant rebound try on Friday, they were off nearly 40 points.
At first blush (caused by a sharp rise in the blood pressure of those
day-traders who recently glommed back on to the stock), the plunge seemed
prompted by the company's forecast that investors should expect widening
losses over the rest of the year. And since it was the most obvious
explanation, it was, of course, seized on by analysts.
In fact, the true cause of the negative reaction to the official prophecy was not
the prospect of losses. Quite the contrary. It was fear, pure and simple, that
the losses would not be big enough.
Which makes sense. For we have Amazon's visionary leaders' insistence,
voiced every chance they get, that losses are a crucial component of their
long-range corporate blueprint. So any threat, however remote, of diminishing
deficits would place that vaunted business plan in jeopardy and thus might
seriously impair the stock's legendary powers of levitation.
After perusing the official release of operating results, parsing the commentary
contained therein and scanning the numbers, and after scrutinizing accounts of
the conference call with analysts, we're bemused. For nothing in the financials
or the honchos' remarks suggests even the slightest danger of smaller losses in
the foreseeable or unforeseeable future. And certainly, on the evidence to
date, Amazon's aggressive acquisition program should furnish further
reassurance that the red ink will continue to flow ever more freely.
We can only conjecture that the totally baseless rumor of smaller losses is a
malicious fabrication of rival online merchants or scoundrelly short-sellers.
One conceivable source of confusion and unease for investors worried about
a decline in deficits is the generous menu of losses provided in Amazon's
first-quarter statement. These include: loss from operations, net loss, pro
forma loss from operations and pro forma net loss. Our advice to nervous
Amazon fans is not to miss the forest for the trees and focus on the fact that
while sales more than tripled, that rise was dwarfed by the fivefold increase in
operating losses.
As befitting the leading Internet bookseller, Amazon generates a vast flow of
brokerage-house reports. In our humble opinion, however, none can match
the superb analysis constructed earlier this year by one of the company's
steadfast Street followers. After considering several possible paths the
company's fortunes might take in the years to come, the analyst concluded
that Amazon was worth somewhere between $1 and $200. The neat part is,
we won't know for sure whether it's $1 or $200 until 2003, at which point,
alas, he may be following UFO stocks.
Back on January 25, this space made its own contribution to the question of
what Amazon is worth. The heavy lifting in the piece was actually done by
Rhonda Brammer, so we're not being extraordinarily immodest -- just
normally immodest -- in saying we think it was a pretty good job and
especially when compared with the mounds of rubbish on the subject that
passes as commentary.
What the piece set out to do was cut through the buzz and get a fix on
Amazon as an operating business. Toward that noble if neglected end, it
pointed out that the company's main business -- peddling books -- was
notable for its low returns, with the two leading outfits in the field bringing
down to net only two to three pennies of every sales dollar.
Moreover, no less than 25 cents of every dollar Amazon takes in rather
quickly goes out for marketing and sales. That ample expenditure is
occasioned, in part at least, by the melancholy fact that the competition is
cutthroat and deep discounting imperative. And in the intervening months,
there has been no change in either the intensity of competition or the depth of
price cutting, except for the worse.
Even though Amazon largely is unburdened by the costs borne by, say, a
Barnes & Noble, its gross margins are much narrower: Barnes & Noble
brings down 27-28 cents of every sales dollar to its bottom line, compared
with Amazon's meager 23 cents.
Determined to diversify, Amazon overnight became the Internet's No. 1 seller
of CDs. However, since CDs have even worse margins than books, "the only
thing Amazon has proved so far," as Rhonda put it, is "that it can lose money
selling books and lose still more money selling CDs."
Will Amazon ever make money? We were -- and are -- doubtful.
Barnes & Noble's stock sells for a tad over 80% of revenues. Amazon's
stock sells for a tad over 33 times revenues. Something's out of whack -- and
we don't think it's that Barnes & Noble's shares are undervalued.
Rhonda did a little pencil work and, using a generous estimate of forward
sales, zeroed in on what Amazon was worth. At twice sales, the stock would
sell for less than 25, at one times sales, for less than 12.
At the time, the shares were changing hands at 123. Subsequently, they
dropped sharply -- only to rebound even more sharply, soaring well past 200.
Last week, Amazon closed at 172 and change. We still think it's worth at
most 25 or, just as easily, something under 10. |
