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

To: Bill Harmond who wrote (19818)	10/5/1998 10:59:00 AM
From: Sam Citron	Read Replies (1) \| Respond to of 164684

William, Selling books and tapes on the net in 2003 or whenever Amazon is expected to become profitable will not be rocket science. It will be a mundane low-margin retailing business subject to cut-throat competition, perhaps even from publishers, who may adopt a Dellesqe direct sales model with print-to-order. There is simply no credible way any analyst can confidently produce a string of annual earnings estimates for a timeframe 3 to 30 years in the future in a brand new industry that is undergoing rapid change. One thing we know is that barriers-to-entry are not expected to increase. In an increasingly online world, we also have many other sources of current information than mere books. Since the web is such an efficient publishing and dissemination medium, information of all types is flowing to the net at a rapid rate. Simultaneously, as web devices and monitors keep coming down in price, it is a near certainty that e-books will one day begin to make their appearance. Books may be comforting things we can decorate the house with or take to the john, but they are not the commodity I would choose if I wanted to turn cash flow positive in the 21st century. Even though Readerman pointed out the danger of mindless spread sheet comparison analysis -- "if Yahoo can sell for PSR of X then so can Amazon, or whatever" -- you continue to use the performance of Yahoo to justify Amazon's price. This is not justified. Amazon is a retailer, not a portal. Yahoo's advertiser driven model is predominant on the web, where people do not like to pay for information. Amazon's commercial model, which relies on selling data and information over the web, yet in a container that has to be shipped UPS, runs counter to this prevailing megatrend. The reason for Amazon's high market share is simply that they were the first ones to do it and the fact that they have executed fairly well. But don't confuse first mover advantages with sustainability. The information industry will evolve rapidly over the next ten years. There is a very high degree of risk in any forecast that goes out this far in time. Conventional DCF analysis does not adequately address the question of technology risk that is inherent in the business model of a company like Amazon. Interest rate alone, i.e., a dollar next year is not worth a dollar today, does not adequately reflect the true discount rate for such companies. To be conservative I would add a couple of percentage points each year to the discount factor as I discount future expected earnings to account for the risk of predicting earnings in such a perilous market. Of course, reported earnings are another matter entirely.<g> Sam Citron