Amazon.com Jumps 19% as Analyst Predicts $400 Price (Update6)
Dec 16 1998 17:58
Seattle, Dec. 16 (Bloomberg) -- Amazon.com Inc. shares
surged 19 percent after a CIBC Oppenheimer analyst predicted that
the No. 1 online bookseller's stock will reach $400 in 12 months
after already soaring more than eightfold this year.
Amazon.com rocketed 46 1/4 to 289 in trading of almost
17.0 million, giving the unprofitable company a market value of
$15.2 billion. Rival Books-A-Million Inc. jumped 8 1/16 to 18 1/8
and was the most active U.S. stock. Amazon.com was the third-most
active.
Amazon.com shares have skyrocketed this year on investor
enthusiasm for almost any company with a Web site. Amazon.com has
at least quadrupled its revenue every quarter this year, though
it's still pouring millions into advertising and hasn't yet
turned a profit in the highly competitive business of peddling
books, CDs and videocassettes over the Internet.
''The insanity goes on and on,'' said David Simons, managing
institutional research company.
CIBC Oppenheimer analyst Henry Blodget, who made the $400-a-
share forecast, wasn't available to comment.
Amazon.com declined to offer revenue projections or to say
when it expects to be profitable.
Amazon.com's losses are expected to widen to $1.71 a share
next year from $1.62 this year, according to the average estimate
of analysts surveyed by First Call Corp. One analyst expects the
company to make a profit in 2001, according to First Call.
Paying for Losses
Amazon.com's investors are paying about $165 for every
dollar the company has lost during the past 12 months, based on
today's closing stock price.
Still, one shareholder said the $400 price range was
aggressive though obtainable.
''This is the high end'' of possibilities, said Ryan Jacob,
portfolio manager of the Internet Fund, which owns Amazon.com
shares. ''This is not a certainty.''
Seattle-based Amazon.com's market value now matches that of
Caterpillar Inc., the largest maker of construction equipment.
Amazon.com reported third-quarter revenue of $153.7 million,
irector of New York-based Digital Video Investments, an
compared with Caterpillar's third-quarter revenue of $5.17
billion.
By contrast, Barnes & Noble Inc., the largest U.S.
bookseller, has a current market value of $2.2 billion. It
reported $674.1 million in revenue for the fiscal third quarter
ended Oct. 31 and a quarterly loss of $4.59 million, which the
company blamed on higher expenses for its Internet site.
CEO's Stake
Today's surge in Amazon.com means that Chief Executive Jeff
Bezos now holds $5.71 billion worth of the company's stock,
according to regulatory filings. Today's increase added $914
million of value to his holdings.
Amazon.com said last month that it would split its stock
3-for-1 for shareholders of record as of Dec. 18.
Not all investors and speculators are optimistic about the
stock, though.
About 7.4 million Amazon.com shares were sold short as of
Dec. 1, or one-third of the total ''float,'' or shares held by
the public. Short sellers seek to profit from a declining stock
by selling borrowed shares and then buying them back later at
what they hope will be a lower price and pocketing the
difference. If the stock rises, though, short sellers lose money.
''Part of it has to be a short squeeze,'' Jacob said. ''You
can't ignore it. That's one reason there are such dramatic
movements'' in Amazon's stock price.
A short squeeze occurs when short sellers are forced to buy
shares at a higher price to be able to return the borrowed
shares.
Day Traders
''You need to look at the lot sizes and where the volume is.
This is mostly individuals and day traders,'' said Steve Horen,
an analyst at NationsBanc Montgomery Securities, who has a
''buy'' rating on the stock.
Thestreet.com's Internet index, which tracks 20 companies
including Amazon.com and Yahoo! Inc., has more than doubled in a
year. Companies such as K-Tel International Inc., known for its
late-night TV ads pitching the Veg-O-Matic and music titles such
as ''Hooked on Classics,'' have seen their stocks soar after
announcing they're opening a Web site.
Still, those day traders and individuals can be as quick to
drop a stock as to bid up its price. Amazon.com tumbled 21
percent on Aug. 31 and America Online Inc. dropped 15 percent
amid concern that Internet stocks had risen too high, given their
earnings prospects.
Blodget said he was raising his price target because
Amazon.com passed his $150 target last month. Amazon.com recently
expanded its product line to include videos and gifts such as
personal electronics, and it said the number of orders on its Web
site on the day after Thanksgiving were four times higher than a
year ago, Blodget noted.
$400 Target
Amazon.com could generate annual revenue of $10 billion and
earnings per share of $10 within five years, Blodget wrote in his
research report. He reached the $400 price target, which is more
than double his previous one, by averaging the price targets from
three methods of forecasting.
First, he applied the stock's current price-to-revenue
multiple of 15 to his 2000 revenue estimate of $1.5 billion,
which gave a price target of $380. Then he applied a price-
revenue multiple of 10 to his ''aggressive-growth'' projection of
$3 billion in sales in 2000, which yields a $500 target. The
third method reached a $300 target by discounting a five-year
earnings estimate of $10 a share at a 20 percent interest rate.
By contrast, Barnes & Noble stock currently has a price-
revenue multiple of 1.15.
''As with all Internet stocks, an Amazon valuation is
clearly more an art than a science,'' Blodget wrote. ''We firmly
believe that Amazon.com will one day make a lot of money, and we
find it hard to believe that if our aggressive-growth scenario
stays on track over the next 12 months, the stock's upward trend
will reverse itself.''
--Aimee Picchi in the New York newsroom (212) 213-2300 and
Colleen McElroy in the Princeton newsroom (609) 279-4069,
with reporting by Mylene Mangalindan in San Francisco
through the San Francisco newsroom (415) 912-2980/gcr/smw |
