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

To: Danny who wrote (100034)	4/12/2000 10:37:00 AM
From: brian z	Read Replies (1) \| Respond to of 164684

internet insight! By Steve Harmon CEO /e:harmon zero gravity/ 'creating the ecommerce network for entrepreneurs and investors' Dear Jeff (Bezos, CEO of Amazon): When you were a guest at my investment conference 3 years ago you mentioned having a list of 21 Web startup ideas when you left D.E. Shaw. You chose books. About three years ago when nobody gave a hoot or holler about Amazon.com as a stock I wrote an investment report that postulated that Amazon could grow out of books and into a wide array of products. AMZN shares traded at $7 then. It's been quite a long ride from there for the company as you built what I think is a critical mass of customers -- more than 10 million -- and indeed began selling music and videos. Amazon also acquired Junglee, the shopping search engine, the Internet Movie Database, and Alexa (search companion). Of the acquisitions none strike me today as being evident in Amazon's offerings. All these years the press called and continues to call me and asks what about Amazon? do earnings matter? And I've been a big believer that Internet companies should invest today in acquiring new users or customers to fend off rivals and to gain marketshare cheaper than tomorrow. Invest in growth. That's what I've said about Amazon. Until now. And the news today backs that up as CDNow, Dr. Koop, PeaPod, Webvan, eToys, and the entire etail sector don't quite seem to have critical mass to sustain growth or cash. You smartly sold bonds to raise a few billion. However, etail and its offline cousin retail are not fat-margin businesses. 10% net income is nirvana while 3% is more likely. 3% for those who actually get there before running out of cash that is. AMZN profit margin for the trailing twleve months is minus 39%. Negative. The fundamental flaw in etail resides in the movement of goods and the cost to do so. Warehousing, shipping, delivering, tracking, returns. Heavy gravity. The beauty of the Internet is twofold: distribution and computing power. Not shipping and handling. So when you embraced the online bookselling model you chose the heavy gravity side of the business and not the zero gravity side, the pure digital commerce side. Amazon is basically a Web ordering system for hard goods. You recently added tools and hardware, patio and lawns, and some other items to the mix. Amazon now has 7,600 employees and a good many of them pack, tape, address and ship stuff, the expanding universe for sale through Amazon. Heavy gravity. You forever changed the book business. And now retail by making the Web buying experience user friendly. Sales are more than $1 billion, substantially more than many Internet companies will ever see. But I'd rather have $100 million earnings than $1 billion sales. The challenge now -- 5 years later and no earnings -- is how does Amazon write the next chapter? Taking on the load of goods side of the equation has more to do with retail than etail. Having a Web front end now is not so rare. eBay has always had a better business model: put buyers and sellers together and take a transaction fee. No shipping, no handling, no warehousing, no returns, no address labels, no postage. Zero gravity. I think a merger with eBay makes sense, lighten the load and move into digital commerce more. Now that Amazon built a critical mass of customers I think you have one opportunity that no other etailer has: as the smaller etailers scramble it provides Amazon an opportunity to roll up more categories. Some of them even have cash that you can acquire for $0.50 to the dollar, or better, for stock. That means you basically get the cash, customers, Web technologies, database engine and more products to sell for AMZN currency. The downside there is it hurts potential earnings but some of these companies trade at under $100 million, hardly dilutive. (There's more ideas here for another conversation). Etail is and probably won't be an investor favorite anytime soon again. If you're going for the 'Wal Mart of the Web' approach then that'll likely cost $5 billion to build over the next 5 years, easily. Amazon's at a twist in its tale, late in the story where no horizon for earnings I don't believe will satisfy shareholders or others. It took AOL 10 years to post positive earnings but after 5 years AMZN should have earnings in my view. You've built a great etail machine but what are your next moves? Sincerely, Steve

To: Danny who wrote (100034)	4/12/2000 11:24:00 AM
From: Robert Rose	Read Replies (1) \| Respond to of 164684

<If SUNW comes out with a big disappointment> This is expected?