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

To: Ron Kline who wrote (11704)	7/25/1998 3:51:00 PM
From: Rob S.	Read Replies (1) \| Respond to of 164684

Over on The Motley Fool site CouchPotato has suggested that the only worthwhile way to value Amazon.com is not from the fundamentals, not even the speculative 3 or 5 year forecasts, but by taking an approach similar to VCs (Venture Capitalists). OK, if you want it that way, then I suggest using some of the same hard nosed thinking that the VCs use. VC's do not throw money at companies without expecting to turn a fat profit. One way they make that fat profit is by taking the firms public and selling their shares to the speculators at pumped up prices just before competition steps in to the degree that the outlook dims. I doubt any VC would ever shell out $6.5 billion dollars on the front end of a start-up that is years away from showing the first profits!. No, they shell out enough to bring it to a stage of development that they can make it attractive to the public. From then on it is YOUR money they are playing around with. Speculators are crazy, IMO, to buy into risky propositions at a point that they have already reached 5 year valuations. That is when the VC's are happy to sell their stock to them. I could say more about how rediculous I think it is to invest in Amazon.com at the current level, but then thread shouting matches would probably ensue. (yeeesh!) Here is the first installment of a response I posted on TMF site: <Your approach is a good one for those with enough experience and skill to do a thorough analysis of both the management, the business plan, and the business environment it fits into. Unfortunately, judging companies on these criteria is very difficult for the small investor and impractical for the small investor. You are asking him to throw out the rigors of fundamental analysis and use instead the subjective methods of the dedicated and experienced venture capitalist. Without the proper experience and grounding that is very dangerous. Unlike the average small investor, the VC not only pours over a detailed business plan before deciding to risk money on the venture, but they also put the plan and management in the frying pan and make them explain and defend their objectives, assumptions and planned execution. They get full disclosure that goes well beyond what is available to even the most talented private investor. The private investor has no such ability except passively through investment analyst surrogates who often are looking out for their brokerages and clients positions first and servicing their duties as under-writers and sponsors of the company. Objective opinions may be difficult to get. VC firms typically play "Devils Advocates" by calling management to face-to-face meetings and tearing into the specifics of the business plans, management backgrounds and competencies, and actions. I do agree that the best way to analyze start-up companies is to challenge their business assumptions, plans and execution. Even if that is not with the luxury of "calling management on the carpet" to be first hand proponents and defenders of the business. Because of the limited access to detailed inside information available to this thread, at best this approach is a speculative and high-risk method of investing. Given the tremendous degree of speculation that already has driven Amazon.com and other Internet issues, this approach can hardly do worse. -------------- There has been a lot of assumptions and postulation made about the business plans and future of Amazon.com. I think that too little regard has been paid to what the company itself has said were their plans and expectations and too much pure speculation has bid the company up to super valuation that most VCs would be reluctant to accept. I have seen Amazon.com's early business plan and know some of the developers of the systems software who have detailed knowledge of technical aspects of the business. My own education (EE & MBA) and experience (20+ years in high-tech marketing and business ventures) gives me some worthwhile background with which to view Amazon.com and other Internet start-ups. Here are some of the basic assertions and assumptions of Amazon's business model and some of what speculators have used to justify Amazon's stupendous stock valuation: 1] Business Assertion; Amazon.com has a clear technical advantage due to in-house developed e-commerce and client filtering and active database push software and server systems. This advantage helps to give them a defensible position. Rebuttal: Amazon.com HAD a clear technical advantage when they were forced to develop their own back-end and web software systems. That advantage has evaporated and is now just boils down to implementation. Amazon itself has begun using third party software systems for primary filtering, content/page push, and reporting capabilities - the leading edge functions in e-commerce today. Borders, Barnes & Noble or anyone else can buy THE SAME or similar software from THE SAME or similar companies. Maybe the hardest part of doing this is deciding which of the many offerings is best suited to the company's particular server systems and web development environments. 2] Assertion: Amazon.com has developed brand recognition and momentum that competitors can not catch up with. Rebuttal: Amazon.com's CEO, Bezo said in this weeks cc that Amazon.com has developed it's business by concentrating on the customer and delivering a superior web experience. That boils down to useful search engine capability, well indexed references to similar offerings, highly responsive database and page generation server systems (fast response) and clean and responsive page content. Amazon was maybe the best early adopter of active database server technology, but, as stated above, that differentiation has evaporated and now amounts to implementation. Amazon's Covey stated that Barnes & Noble and Borders had made significant strides in revamping their web sites and now are viewed by Amazon as being more competitive. Visit Amazon's competitors and see that their offerings have closed the gap. 3] Assertion: Amazon.com has a market momentum leadership position that others cannot duplicate. Rebuttal: Amazon.com does have market share leadership but momentum has already started to falter. Barnes & Noble and Borders have just put in place the technical and page authoring capability to be competitive. Now that the systems stuff is in place, the ad campaign has begun to be effective. It takes both of these elements to amount to serious competition. Page hits at B & N have soared to 1/2 of Amazon's. While sales still lag behind that level of increase (follow through normally lags), they can expected to move up significantly in the coming months.>