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

To: Glenn D. Rudolph who wrote (10040)	7/11/1998 11:39:00 PM
From: Rob S.	Read Replies (1) \| Respond to of 164684

High growth rates and revenues are not all that is important. Margins and viability of the cash-flow model need to be taken into account. Almost anyone can sell stuff bellow the cost of bringing it to market. The internet offers both a fantastic automation of communication and delivery of services and products but also a lessoning of the barriers to product sourcing and competition the likes of which the world has never seen. Amazon.com has a high-profile, high rent district, rich yupie business model that is oriented toward the growth side of the internet paradigm to the detriment of even comprehending the margin contraction side of the equation. They are showing increased losses with no prospects for profit for the next couple of years. Meanwhile, both richer and leaner & meaner competitors are adopting the same open strategies and tighter business practices to offer products at price levels that will leave Amazon.com bankrupt or at best a marginally profitable company at the time investors hope they will be seeing gravy. The Amazon bulls offer few concrete arguments as to how Amazon will ever realize the huge profits that would justify the current, let alone some higher price. I challenge anyone to offer a roadmap to Amazon's profits with even the barest of details that can be intelligently debated. Amazon now has gross margins of 22.4% which the company admits will go down as competition broadens. They offer books and tapes/CDs at a mere 20% off, no more than walk-in retail establishments while several competitors routinely offer 30%-50% discounts. Were is the gravy going to come from?

To: Glenn D. Rudolph who wrote (10040)	7/11/1998 11:59:00 PM
From: llamaphlegm	Read Replies (2) \| Respond to of 164684

Glenn: <<<The valuations are all crazy. Valuations may seem sky high, but they're not all crazy if you take the trouble to understand each company's market niche and business model. The market is forever trying to move to a price that discounts all a company's future free cash flow by way of a risk-adjusted rate of return. Applying this imperative to an industry in hypergrowth is a process fraught with risks of miscalculation that more mature businesses don't present. Yet generous though reasonable assumptions about long-term prospects can justify prices that may initially seem absurd. Consider Yahoo!, whose ultralight business allows it to generate gross margins of 88.5% versus 22% for online retailer Amazon or 34% for souped-up Internet access provider America Online. While one could argue about how "sticky" each company's customer base is (how high the costs are to a customer for switching from one of these companies to a competitor), it's clear that Yahoo! could eventually deliver extremely high operating profits. Indeed, a 36% jump in revenues from the first quarter of this year to the second led to a 151% surge in operating profits as margins leaped from 12.1% to 22.3%. With the cost of online ads rising and overall online ad spending growing, Yahoo!'s ad/commerce revenues should continue to soar, boosting operating margins along the way. America Online's ad/commerce run-rate is about $500 million a year. Though Yahoo! is far behind AOL in that area, its reach seems comparable. Imagine, then, that Yahoo! can do $1 billion in revenues by 2001 with Intel-like operating margins of 50%. Assume a 35% tax rate, and the company would deliver $325 million in net income. Divide that by 65 million shares and you get $5 in earnings per share. Now paying 36 times guesstimated FY01 earnings may not sound like a smart move. In fact, I wouldn't do it. But it's not in any simple sense ludicrous. Indeed, it's about what Coca-Cola (NYSE: KO) trades for today. -- by Louis Corrigan>>> Did you notice which of the three "tier 1" companies he cites earlier in the article, he then neglects to provide with an explanation of its business plan, market niche, or analysis of the stickiness of its customers???