Net Deals Sink Amazon.com,
But Analysts See Silver Lining
By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- A wave of deal-making among Internet merchants
dented the stock of Amazon.com on Wednesday and left analysts pondering
the possibility of further consolidation in the online retailing market -- and
even eventual consolidation among portal sites.
In the broader technology sector, the Nasdaq Composite Index dropped 48.28,
or 3.2%, to close at 1462.61, while Morgan Stanley's high-tech 35 index fell
9.95, or 2%, to 492.32.
Merger talks between two leading music sellers
-- N2K and CDnow -- energized the stocks of
both companies. N2K rose 1, or 22%, to 5 1/2,
while CDnow edged up 3/16 to 8 1/8, both on
the Nasdaq Stock Market. In response to the
reports, N2K and CDnow issued a joint press
release Wednesday morning confirming that
they are discussing a "possible transaction," but
denied that an agreement had been reached (see
article).
Meanwhile, European media giant Bertelsmann
said late Tuesday that it would pay $200 million for a 50% stake in Barnes &
Noble's barnesandnoble.com Internet book selling venture (see article).
Both announcements helped rattle shares of Amazon, the highflying Internet
bookseller that has branched out into music sales. Its stock fell 14 7/8, or
14%, to 93 7/16 in active trading.
Analysts, though, looked at the actual and proposed pacts as less of an
imminent threat to Amazon than as a validation of its leadership in online
retailing.
The partnership between Barnes & Noble and Bertelsmann, for one, again
underscored that barnesandnoble.com hasn't been a smash hit. Barnes &
Noble expects its online unit to have revenue of about $75 million this year,
but no profit. In 1997, Amazon.com had sales of $147.8 million and a net
loss of $27.6 million.
The Barnes & Noble-Bertelsmann deal "seems to highlight the difficulties of
developing online businesses," Derek Brown, an analyst at Volpe Brown
Whelan & Co.
The talks between CDnow and N2K can also be cast in a positive light,
because they indicate that Amazon is being taken seriously by its rivals in the
music market.
A lot of small, public retailers "will find it increasingly challenging" to
differentiate themselves from bigger players, said Lise Buyer, an analyst at
Credit Suisse First Boston. Ms. Buyer added that the Internet is an "increasing
returns business" -- essentially, bigger companies get bigger sales growth.
Indeed, while Amazon remains a highflyer despite Wednesday's slump, Wall
Street appears to have largely lost interest in CDnow and N2K, both of which
have both seen their stocks drop precipitously into the single digits, well
beneath their 52-week highs. Another small Internet retailer, travel service
Preview Travel, tumbled 2 1/4, or 16%, to close at 11 1/2 on Nasdaq.
That trend, along with an especially volatile stock market, may heighten the
pressure on some Internet retailers to sell-out to or partner with bigger firms,
analysts believe. Earlier this year, Reel.com, a closely held online video
retailer, was scooped up in a $90 million deal by bricks-and-mortar chain
Hollywood Entertainment, and Amazon is widely believed to be plotting its
own foray into video selling. Other retailing categories that might be affected
are online travel agencies, computer software and hardware sellers and
Internet brokerage firms, according to analysts.
The consolidation among Internet retailers could put pressure on other
players in the Internet market as well. Yahoo!, Excite and other operators of
portal sites, the popular hubs of Internet traffic, have all received
multimillion payments from Internet retailers in exchange for tenancy on
their sites. With fewer retailers in each shopping category, analysts said the
bidding wars between competitors for portal space may be less intense.
"If there are a lot of mergers, what does it mean for portals who collect big
fees?" asked Ms. Buyer. "It could mean we don't need 12 portals. Just as
retailers consolidate, so might the Net hubs."
Wednesday's Market Activity
Elsewhere in the technology sector Wednesday, other Internet stocks were
extremely weak.
SportsLine USA plunged 8 11/16, or 53%, to 1 11/16 on Nasdaq, while
America Online fell 6 to 91 5/8 on the Big Board. AOL said it will receive
more than $23 million in cash, stock and warrants under an expanded
partnership with SportsLine. Separately, SportsLine warned of weak
quarterly revenue (see article). Also, AOL launched a version of its service in
Australia (see article).
Lycos fell 3 to 27 1/8 and Yahoo! slid 10 7/16 to 114 3/8, both on Nasdaq.
Advanced Micro Devices fell 4 3/16, or 21%, to 15 11/16 on the New York
Stock Exchange after the company reported its first profit in five quarters
(see article). Analysts praised AMD's third-quarter performance, but they
were surprised to learn the company plans to spend an additional $20 million
to $25 million on research and development in the fourth quarter.
Symantec was unchanged at 10 9/16 on Nasdaq even though both Cowen &
Co. and A.G. Edwards cut their ratings on the stock to "neutral" from "buy,"
after the software maker warned of a weak quarter (see article). |
