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: Glenn D. Rudolph who wrote (2932)	4/9/1998 1:27:00 PM
From: H James Morris	Respond to of 164684

I've got to post this again to comfort us poor shorts. The one thing I did learn from a previous post, is that Wall Street is prepared to pay $95ps for Amazons data base. They never taught me that at Grad school or about a feeding frenzy. I guess I'll have to back to school and start all over. To the guy that covered his shorts after only losing a few points. Don't you know that the longs here, love you to death? Subject: The Truth Hurts Date: Wed, Apr 8, 1998 16:20 EDT From: Gildy111 Message-id: Robert DiRomualdo-->CEO Borders Books---->ML Retailing Conference in NY "I looked at four public entities selling books and music on the web last year for which I could get my hands on real data either via public offerings or through Barnes & Noble's segment disclosure. The sales of these four entities last year combined were $190 million. Combined pre-tax losses were $82 million. However, the combined market capitalization of this group is about $3.3 billion. You look at those numbers and wonder if anybody can understand this? Clearly, e-commerce is getting high-tech valuations but this is not Microsoft. We are in this business and will be launching our commerce site soon. However, this is not Microsoft where I sell an extra 100,000 copies of Windows 95 and my cost of goods is zero and all these additional sales drop to my bottom line. This is not Yahoo where the feeding frenzy allows me to triple my rates for search engine space which all drops to the bottom line. This is a low margin retail business. The gross margins on these companies are in the teens. At this stage, we have 1000 basis point gross margin advantage over them and our gross margin includes occupancy. This is also not a free labor cost business. You are not downloading a piece of software. We have to singularly pick and ship goods. It is a low margin retail business which happens to have an extremely high occupancy cost today. The marketing and promotional expenses are so high because of the cost space on search engines. The economics are actually quite screwy at the moment. I look at these statistics and think that we are getting whipsawed. Obviously, we would like to get some of this valuation except we do not want this type of valuation unless we think it can produce profit over time. If we were to acquire all four of the entities with public valuations currently selling books and music on the Internet, and for Barnes & Noble I mean just the Internet division in theory, we would have had sales of about $2.5 billion last year and reported earnings per share of only $0.15. Our current combined market valuation would have implied a multiple of 221 times earnings. It really is rather interesting. What is happening is that the market is rewarding revenue growth. When a market rewards revenue gains, a firm will do anything to drive revenue including severe discounting and inefficient advertising. It literally becomes a feeding frenzy for space. As I understand it the Barnes & Noble deal which they signed a couple of months ago with America Online was for $41 million. Whether that is a good deal or not, I do not know. However, I have a feeling that if they had paid $61 million for the same deal it would have made no difference in any of the valuations of any of the stocks today. It literally is a feeding frenzy. As I said, when you reward revenue, will people do anything to get it. These four publicly valued companies have said that they plan to spend $155 million on advertising and promotion this year on a sales base last year of $190 million. This could be more money spent on promotion and advertising than the entire retail industry of books and music spends throughout the country. Those statistics are for just four players. It does not include Bookstacks, Tower.com, us or anybody else."