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: Jan Crawley who wrote (11782)	7/26/1998 1:24:00 AM
From: umbro	Read Replies (1) \| Respond to of 164684

Amazon.com Surge More Likely Is a Short Squeeze [ my note: An NYT article from Sept. 2, 1998. Deja Vu all over again. nytsyn.com ] By ROGER MADOFF c.1997 Bloomberg News The recent surge in Amazon.com Inc.'s stock is being powered by speculators who had bet that the Internet bookseller would flop and now are covering their losses, investors said. Amazon's shares rose 1 1/2 Tuesday to 55 1/2, an all-time high, rising 39 percent during the past three days. The spark came after analysts gave an upbeat appraisal of a meeting with top executives at company headquarters in Seattle, the first such talk since Amazon went public at $18 a share on May 15. Still, nothing analysts said justifies the size of the gains, according to investors and traders. ''It's absolutely a short squeeze,'' said Mike Molnar, head of Nasdaq trading at Smith Barney Inc. A short squeeze occurs when speculators bet wrong. They initially sell borrowed shares -- called shorting -- in the hopes of buying them back later at a lower price. If the shares rise instead, they are forced to snap up the stock to close our their bets, driving prices even higher. That squeezes the remaining short sellers, making their losses even worse. As of mid-August, 1.65 million shares of Amazon were sold short out of 3 million available for trade. The other 7.5 million shares outstanding are owned by insiders. Normally a company is ripe for a short squeeze when the short position exceeds 25 percent of the stock that trades. Amazon's short interest is 55 percent. The squeeze has left Amazon vulnerable to a swift decline that would have as little basis in the company's changing business prospects as has the latest surge, said Bill Fleckenstein, a short-seller who said he steered clear of Amazon. The backpedaling by Amazon's critics is helping drive Amazon stock beyond what some bullish analysts consider a reasonable valuation, given its prospects for profits. Mary Meeker of Morgan Stanley, Dean Witter, Discover & Co. began covering the company Friday, telling investors to buy the stock for it's long-term prospects. Still, ''Amazon's valuation gives us heartburn of gargantuan proportions,'' she wrote. She published her report when the stock was at $40 a share. Meeker was unavailable for comment. Optimism about Amazon was spurred by the analyst conference last week, marketing agreements, and investor hopes that more than one bookseller can succeed on the Internet. Barnes & Noble Inc. is Amazon's biggest competitor. Amazon is expected to benefit from its early lead and its online prowess, grabbing a part of book sales that are expected to move to the Web. ''There is a recognition of what the company is, which most people didn't have before,'' said Colin McNay, portfolio manager at Essex Investment Management, which owns Amazon shares. Amazon is expected to generate sales of $124 million this year and $273 million in 1998, according to Morgan Stanley's Meeker. Bears point to Meeker's profit estimates. Meeker expects Amazon to lose $58.1 million in the next two years, before reporting a $2 million profit in 1999.

To: Jan Crawley who wrote (11782)	7/26/1998 1:46:00 AM
From: umbro	Respond to of 164684

Knowledgeable sources place Vinik squarely behind the breathtaking run-up in Yahoo! Inc. shares, an Internet navigator company. [from Forbes, Octoberÿ6, 1997 forbes.com October 6, 1997, The Yahoo! yo-yo, By Gretchen Morgenson ] This hot little outfit had only $19 million in sales last year, on which it lost $2.3 million. This year, according to estimates, it will maybe make $3.2 million. But it has a market capitalization of $2 billion. Yahoo! is a yo-yo. Since Goldman, Sachs brought it public in the spring of 1996 at a split-adjusted $8.67, it soared to $56.75 but not without frequent short drops along the way. Is this for real? One hundred times revenues, 800 times losses. Or has the stock flown so high because some smart players are out to squeeze the shorts? There's a sizable short position in Yahoo!-as of August, 3 million shares, or 7% of the stock outstanding-a tempting target for players adept at forcing short-sellers out of their positions with big losses. Guess who owns a lot of the stock? Fidelity Investments, of course, with 1 million shares, but Fidelity owns a lot of just about everything. Look who is number two holder of Yahoo! As of June, Vinik Asset Management, Jeff's new outfit, held half a million shares, and Vinik was reportedly buying more in early September. Perhaps to disguise his activity, Vinik spread his orders around, buying through Goldman, Sachs, Montgomery Securities and Volpe Welty. His buying does two things: helps push up the price of the stock and makes the short-sellers sweat. They have other reasons to sweat. Put and call options on Yahoo! stock began trading Sept. 9 on the Amex and the Chicago Board Options Exchange. Traders know that stocks bounce when options start trading. Indeed, Yahoo! rose 11 points-almost 25%-during the week the puts and calls began trading. If that weren't enough, the short-selling community took a hit from George Soros' Quantum Fund, which is calling in money it had farmed out to professional shorts. Suddenly, in mid-September, Yahoo! took a tumble, dropping from 52 to the mid-40s, shedding some $400 million in market value before recovering some ground days later. If this means the shorts have already been squeezed out, Vinik may have decided to take his money elsewhere. We don't know. Vinik Asset Management, as is its custom, would not comment on its portfolio activity. We do know, however, this isn't the kind of stock ordinary investors should be playing around with.

To: Jan Crawley who wrote (11782)	7/26/1998 2:06:00 AM
From: umbro	Read Replies (1) \| Respond to of 164684

Jan, all your theories on what's leading to a small float, are plausible. The main problem is that the 11 mil. figure is just our working assumption regarding the float, from SEC filings. As you mentioned, if all 8 mil. of the shorts were boxed, there'd only be 3 mil. left. I tend to think most pros would go with the boxed route, but would probably turn to derivates because they're more flexible. Keep in mind also that if investors keep their shares in a cash account, or have the certificates delivered, they won't be in the float. I think most institutions, and esp. hedge funds keep their shares in a margin account (partly because they get a better deal from the broker who is then free to loan out the shares), but that's just a theory. Another problem with there being such high short interest, is there isn't much fire power left on the sell-side, not until 'natural sellers' such as employees and insiders come along. Looks to me as if the short sellers' future is the hands of AMZN employees (who might axercise there ESOP's at this level), and insiders (who probably won't exercise much, otherwise the SEC will hold their feet to the fire. One thing that is likely, however, is that AMZN could unravel as fast as it ran up -- there's a lot air underneath this one.