Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Eric Wells who wrote (64652)	6/25/1999 3:22:00 PM
From: Sarmad Y. Hermiz	Read Replies (1) \| Respond to of 164684

What can I say. All your points are very logical. They were also very logical a few months ago when amzn went from these level to 200. One thing, though, the cost of ramping up to a billion in sales is high, and few are willing to bear it. I agree with those who say there will be fierce price competition and most firms will lose. The debate is what rewards will be for the winner. Will it it be tiny margins on large sales, or high profits ? One thing I have to tell you is if you're going to short, why not wait for a higher level?

To: Eric Wells who wrote (64652)	6/25/1999 5:24:00 PM
From: Bill Harmond	Read Replies (1) \| Respond to of 164684

Eric, Welcome to the thread. You are indeed a dose of fresh air. >>1. Price competition on the internet is fierce - therefore, profit margins on "retail" items (such as books, CDs, etc.) will be very thin. If Barnesandnoble.com sells a book at a lower price than Amazon, a customer can switch over to Barnesandnoble.com with very little effort. And new internet sites to allow users to search for the best bargains on goods will make it easy for customers to find the best price.<< You are right to a point, but but only by degree. The cost of doing business on the Web is very low compared to conventional retailing. I have read reports that say Amazon could be quite profitable with 5% margins. Secondly, Amazon is growing very quickly in spite of the fact that it doesn't offer the lowest prices. There is far more going on here than price: convenience, experience, habit, word-of-mouth, credibility, service, etc. >>2. The cost of customer service for internet companies can be very high, and can act as a drain on profits. Internet technologies are still relatively new - and things sometimes break, or don't work right. Amazon spends a lot of money on customer service and is attempting to use its reputation for good customer service to draw business. But it is costing them a lot of money and eating into their profits - and will continue to eat into their profits indefinitely.<< Again, the cost of customer service on a web-based model is far lower than any other. I don't quite follow your argument. Are you saying that they are spending alot of money leveraging their reputation? If so I agree wholeheartedly. That is the central argument for qualifying "losses" as "investment" in the brand. Amazon understands that it will never cost less than at present to build its customer base. Bezos' strategy is to spend until the particular offering matures. >>3. Barriers to entry on the internet have come down a lot over the past two years. Three years ago, Amazon and Yahoo were technological pioneers - they were breaking new ground in an area that few companies were aware of. Now, the internet is everywhere. And established "bricks and mortar" name brands can set up internet sites with ease, and capitalize on their established names. This means more competition.<< I couldn't disagree more. Barriers to entry were much lower two years ago. The Web was always everywhere, but few saw its commerce potential. Now the the biggest barriers to entry are the category leaders like Amazon, AOL, Yahoo, and eBay with their immense established user bases, and their ensuing network effects. Barnes and Noble has not been able to make a dent against Amazon in spite of it's brand and retail assets. The brick and mortar giants have to balance ho hard they can compete with themselves. Their webifying their operations is similar to biulding too many stores close together and competing with themselves on price! Look at the recent developments at Drugstore.com. Two of its largest rivals (Rite Aid and GNC) bought in and signed comprehensive marketing alliances rather that compete head-on for the simple reason that Drustore will eventually be on the Amazon platform. >>4. Bond interest rates have gone up - this will result in money flowing out of stocks and into bonds<< The best way to deal with this is to say that the bond market slide has already taken something like 20% of the liquidity out of the US economy. That impact has been felt particularly in this sector. That's history. Remember the worst bond market since the depression occured in 1994, and knocked AOL dow from $1.44 to eighty-six cents a share! That was five short years ago.

To: Eric Wells who wrote (64652)	6/25/1999 6:06:00 PM
From: Wizard	Respond to of 164684

>>And established "bricks and mortar" name brands can set up internet sites with ease, and capitalize on their established names. They are being forced to go online and it is certainly not an easy decision. Its a decision which usually means you have to rethink your entire business model and this usually means you take a hit to earnings and your stock price. This business reengineering takes a lot of nimble, motivated leaders unafraid of taking big risks. However, such characteristics aren't the strengths of most big organizations. Think about it, even Microsoft was late to the internet tsunami. You make some good points regarding established companies though. The one thing big companies do have is investment dollars and big marketing budgets to outspend for mindshare. It will be interesting to see what Merrill Lynch is going to do. So far their strategy looks defensive and that might be ok for now but their business model is eventually in for a big change over the next few years. They have Charles Schwab and Etrade to contend with and those companies are much more aggressive and nimble. However, Merrill does have the name and the wallet to compete if they make the right choices. Also, thinking in terms of margins really isn't the right way to go about it. Ultimately, it is the combination of 1) growth and 2) investor confidence in the ultimate business model that will drive each stock's out/underperformance. Dell has been one of the best performers on the NASDAQ and their operating margins are nothing special. Similar story with Solectron. Amazon will likely need to get where they can beat expectations from a net income perspective AND invest and then they will be firing on all cylinders. They certainly have the brainpower but Jeff Bezos must be sitting in Seattle thinking; wow, I have founded either the best retail company ever... or I have founded the fastest rise and flameout in the history of financial markets. I better spend to make sure its the former...