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

To: Don Westermeyer who wrote (2871)	4/8/1998 8:30:00 AM
From: Candle stick	Respond to of 164684

Interesting re-post from the MF boards at: boards.fool.com Subject: Re: Real Value Comparison Author: stocksareme Date: 4/8/98 1:16:43 AM (ET) Regarding your comments about Amazon.com's valuation, yours is a voice of reason amidst a stock market mania/bubble that is about to burst - at least for irrationally-priced stocks like Amazon. But I would go even a step further than you in questioning Amazon's value. Why should it matter whether a company is an Internet stock or not? Amazon, B&N, and Borders are all book sellers, with the same merchandise and the same ultimate target audience - book buyers. B&N is valued at 1.0 times sales, and Borders at about 1.5 times. Amazon is about 150 times sales. For people who say that Amazon should be valued as a "brand" not as a retailer, okay: Consumer brands and the companies that market them are currently selling at about 2 - 5 times sales, depending upon various factors like earnings and market share. As a "brand", Amazon has a minute market share in a low-growth and low-margin business (selling books), owns no valuable patents or technologies, has limited brand equity, has never earned a penny, is relatively small, and is facing enormous competition with limited barriers to entry. Based upon my 20 years of valuing brands and doing acquisitions for major international companies, I would value Amazon at a maximum of 2 times sales = $300 Million. This would be on the basis of a "strategic acquisition" for a competing book retailer or for a publisher looking for vertical integration. On a fundamental earnings basis, Amazon is worth even less. There are now a total of 22 million shares either in public float or owned by insiders, many of whom have registered Forms 144 indicating their plans to sell some shares soon. On this basis, Amazon is worth $13.63 per share. We have recently seen stock price declines of 50% - 75% in a matter of days or weeks for "real" companies with factories, patented technologies, earnings, substantial market share, and billions of dollars in sales - Iomega, 3Com, Oracle, Sun Microsystems, Adaptec, Western Digital, Applied Magnetics - to name a few. A stock price decline of 90% on Amazon wouldn't surprise me at all. Once the erosion starts (maybe it has alredy the past few days), the momentum players will sell their positions, and the insiders will frantically dump shares as they see their net worth crumble. I just hope and pray that no one has money they really need in Amazon stock - their retirement money, their kid's future college tuition money, money they need to buy a house, etc. It will be tragic to see good people lose money they cannot afford to lose on stocks like this. P.S. - To show I am not down on all Internet stocks, I will admit to owning a little EGRP (e-trade) stock. As a company and as a brand, it is a much better story than Amazon. They offer a truly different product from traditional brokers, they don't have the cost of goods or distribution costs of a company like Amazon selling tangible products, and they are one of the only Internet stocks earning money. And the company's valuation is relatively reasonable.