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

To: H James Morris who wrote (72694)	8/8/1999 7:28:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

Merrill on the convertable: Amazon.com?s (AMZN/$125-7/16; D-2-1-9) Q2 results were merely in line with our estimates?for the first time ever. Fantasies aside, we weren?t actually looking for much upside, but times are clearly changing. In the belief that e-holiday euphoria will provide catalysts a-plenty in Q4, we are maintaining our Accumulate rating on AMZN. Revenue increased a modest 7% sequentially to $314 million, in line with consensus. This was by far the slowest growth in the company?s history, and should send any remaining momentum investors leaping out of the stock. Operating EPS of a loss of ($0.51) met consensus. Customer accounts increased 2.3 million to 10.7 million, about 400,000 higher than our estimate and revenue per account dropped to $29, a dollar lower than expected. We are raising our 1999 revenue estimate from $1.38 billion to $1.45 billion and our 2000 estimate from $2.1 billion to $2.3 billion. We are lowering our 1999 EPS estimate from ($1.74) to ($2.00) pre-split and maintaining our 2000 estimate. Management continues to invest massively ahead of demand (which still appears to be the best strategy for long-term value creation). Profitability remains a next-millennium phenomenon. (H. Blodget 7/22/99). The AMZN convert is 5.3% cheap to theoretical value, has a 2:1 risk/reward ratio and 2.5 years of provisional call protection. We have included it in our Convertible Model Portfolio and we continue to recommend it as a Total Return alternative. At 88-1/8 vs. $107-3/16 for the common, the bond has a 28.3% conversion premium and a 5.4% current yield. Our one year total return projections are +16.1%/-7.5% in response to a price change by the common of +/-25%. We used 40% annualized stock volatility and a credit spread of 500 bps over the five year Treasury in our calculations. Provisional call protection extends to 2/02 (NC unless the common is at least $234.08) and the bond is rated Caa3/CCC+ by Moody?s/S&P. There is also a make-whole provision (initially $212.60) that applies during the provisional call period. (7/23/99).