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

AMZN 227.90

+0.4%

3:59 PM EST

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To: Glenn D. Rudolph who wrote (57679)	5/21/1999 12:50:00 PM
From: Rob S.	Read Replies (1) of 164684

I got involved in a conversation with some investment banking and venture fund types yesterday. When the subject turned to the Internet stocks, Amazon was pointed to as an example of "beautiful maneuvering" of the financial and stock float situation to take advantage of the huge growth opportunities of the Internet. This was not meant to be derogatory of Bezo or Covey, the opinion held was that they have taken text book advantage of the situation. Here is the basic formula for success: 1] Start up a company in a very high growth industry or segment by securing venture capital and initial equity funding so that you can afford to lose money as you "beat the competition" with lower prices an other business incentives (like Amazon's associates program). Don't worry much about the bottom line as long as your moves put you into the lime light and paint an exciting picture about a vague and distant future. 2] When you go out for debt and equity financing, structure it so that the expansion is fueled by significant debt so that you do not have to sell that many shares of stock. Therefore you keep the float low relative to the expansion in sales. Of course, you sell more shares through debt conversion and venture fund and insider sales but do so at peak times of stock fever so that the price doesn't collapse. What this creates is the ability to give customers $5 for $4 which is an exciting proposition for creating huge growth numbers. History of the stock market teaches us that In the early stages of new industries, such as the railroads, telephone, tulip bulbs, and now the Internet, the focus is always on market growth. The eventual makeup of the competitive landscape is too distant and quickly changing for anyone to figure out so human nature is to accept what is in front of your face. Profitability and the rational of the business plan are secondary. The most important thing is to create huge momentum in an rapidly growing market and explain away profit objectives as "we are building for a glorious future". What the effect of creating dramatic growth through debt while constraining the float during the early stages is that the narrow float leads to an over demand for the stock and the price shoots up. This is done, of course, with the rabid support of the investment banks and major brokerages who stand to make a fortune supporting and trading the equity and debt offerings and stock trading. ------ Amazon is nearly ready to play the end game of the stock float gambit. They have registered to sell up to $2 billion in new equity offerings. I think they will try to split the stock at the time of the offering and will probably wait until the 4th quarter when the Christmas season helps out the stock price. That will be the culmination of Bezos' "window of opportunity" for Amazon, IMO.

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