I think Amazon.com has a lot to do with this sell off!
I vote we nationalize this treasure unless AOL buys it.
>New York, July 28 (Bloomberg) -- In all but one of its 21 meetings so far this year, the New York InfoTech Forum had speakers who were either chairman, chief executives or founders of leading Internet or technology-related companies.
Yesterday, the star attraction was a 29-year-old convertible debt analyst from Lehman Brothers Inc., Ravi Suria, whose stinging criticism of Amazon.com Inc. has sparked a debate about the future of the company -- not to mention a sharp decline in its shares.
The choice of Suria highlights a shift in investor focus to an Internet company's long-term debt and cash flows, as opposed to its near-term growth potential.
``The psychology has changed,'' said Steven Tuen, co-manager of the Kinetics Internet Fund, which sold all of its Amazon.com holdings last year. ``Investors want to look at a path toward profitability.''
Some 200 investors, analysts and Internet executives trudged through a downpour yesterday morning to listen to Suria explain why Amazon.com wasn't going to turn profitable unless it changed its business methods. A month earlier, an equally critical research report penned by Suria had knocked 19 percent off the Internet retailer's stock price, prompting some bullish analysts to leap to the company's defense.
Not for long, however. At least half a dozen equity analysts reduced their ratings on Amazon.com's stock yesterday. Two others had cut their ratings earlier in the week. Among them was Holly Becker of Lehman Brothers, Suria's counterpart on the equity side. She had a ``buy'' rating on the stock at the time Suria issued his first report. Yesterday, she lowered her rating to ``neutral.''
What's more, delegates at the conference wanted to know how much the six-year-old company would be worth if it ran out of cash and had to sell its business.
Promising Cash Flow
While Amazon.com executives have promised that cash flow from operations would be positive over the second, third and fourth quarters combined, they've yet to say when they expect to start making money.
Suria argues the only reason why Amazon.com can have positive cash flow for the rest of the year is that the company has several months to pay suppliers, meaning it won't have to foot the bill for goods sold in the fourth quarter until early 2001.
``Cash is a fact, earnings are an accounting opinion,'' Suria said yesterday at the InfoTech Forum, whose sponsors include Arthur Andersen LLC, one of the world's biggest accounting firms. ``Amazon focus hasn't been on cost controls. It has been spend, spend, spend.''
Suria suggests that Amazon.com has only been able to stay afloat with the help of its bankers. In February, the company sold 690 million euros (US$681 million at the time) of convertible 10- year notes to finance expansion and invest in other online companies. Morgan Stanley Dean Witter & Co. arranged the sale.
Low-cost Capital
``If the company had not been able to borrow the money, the Amazon.com story might already have been over,'' Suria wrote in follow-up report on the company issued yesterday morning.
The story isn't over, of course, in part because the company was able to raise money easily and at relatively low rates.
``They've emerged here with lots of low-cost capital that Wall Street gave them,'' said ABN Amro analyst Kevin Silverman, who has a ``buy'' rating on Amazon.com shares. ``Now they have the physical capacity, the consumer trust and the awareness.''
Amazon.com had 22.5 million customers at the end of the second quarter, the company said Wednesday after the close of regular U.S. trading.
Sales in the period were $577.9 million, an 84 percent increase from the year-ago quarter. That was lower, though, than the $585 million average estimate of analysts polled by First Call/Thomson Financial. Amazon.com shares yesterday fell 13 percent.
``Amazon.com has high hurdles in investors' minds, and they haven't achieved them,'' Kinetics' Tuen said. ``The market, in trying to keep things on a short leash, is pounding the stock.''
So how much would Amazon.com be worth to a potential buyer? For the first time, the company's net worth slipped to the negative side in the second quarter, ending up at negative $278 million from $26 million last quarter, according to Suria.
Of course, there is enormous value in the company's brand name. That could stretch to $4.5 billion, according to Interbrand LLC, a New York-based brand consultancy firm, which puts Amazon.com No. 48 globally. The most valuable brand: Coca-Cola Co. at $72.5 billion.
Jul/28/2000 15:19 ET |
