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

To: Victor Lazlo who wrote (30221)	12/16/1998 10:33:00 PM
From: Tradegod	Read Replies (1) \| Respond to of 164684

The analyst pointed out that Amazon's revenue is currently growing faster than 300% per year. Yes and the market cap has increased over 1000% per year

To: Victor Lazlo who wrote (30221)	12/16/1998 11:18:00 PM
From: JC Reddy	Read Replies (2) \| Respond to of 164684

A Counter Analysis One day this bubble will burst. The question is who is going to be holding the empty bag? 10 Billion revenues in five years. May be. $10/share? We don't even know how many shares are going to be there. There is going to be a lot of dilution - AMZN needs money! They cannot keep on taking losses. Even assuming there is no dilution, that puts the total profits of about $500 million (approx. 50 million shares outstanding). So, that is 5% profit margin. Now how many retail stores have 5% profit margin? Currently AMZN has -21% margin. Wal-Mart with all its superior supply-chain management has a margin of about 3.2! Every household knows about Wal-Mart and it the best run retail store. Let's discuss a bit more about margins. When I do shopping for a specific thing, I go around searching for the cheapest. I guess all of us do. How hard is it to search for something on the net? Well, Macy's is next to my house, but I drive down all the way to an outlet mall to buy something at cheaper price. I drive down a mile to fill gas at CostCo for $1/gallon since I don't want to pay $1.25 at the nearest Shell. Searching on the net is a lot easier, don't you think? What are the barriers to entry here to prevent competetion? Well, it is hard for me to compete with Walmart because I need a HUGE capital to set up shops, warehouses and develop a supply-chain. Starting something like AMZN is very involved and expensive, I agree, but still a lot cheaper than competing with Wal-Mart. AMZN might become the greatest online shop, but there will be thousands of online shops. Nike will sells its own shoes. SONY will sell its own TVs just like DELL sells its computers. There will be a lot of speciality shops all over (CDNow, BYND, etc.). There are many online bookstores that sell for cheaper prices. Alright, AMZN is the most well known, but would you always buy your book at Barnes and Noble if your friend tells you he got it cheaper else where? I don't think so. That's what will happen. As the net matures, people will get to know where to buy what. In a new city I go to Macy's to buy my dust bin, but in my native town I know where to buy it cheap. My friends, the Net is going to be native to everyone. I don't have loyalty to a particular web address. And that will bring down the prices of everything. Consumer is the winner. The margins will shrink, doesn't matter how efficiently you run your business, someone else will try to beat you. All the BS about digital delivery increasing margins isn't worth it. You cannot deliver my teddy bear digitally. As a matter of fact, it costs $5 to send it to me which I may want to buy from a local store. Digital delivery of books is an interesting idea if we ever reach there, but there too you will have an immense competetion. I love Amazon and it is a pioneer in Electronic commerce. They will do very well, no doubt. They probably are developing technologies that'll make their supply chain efficient. Their shop-the-web (from Junglee's technology) is good, but not unique (YHOO has that as well). AMZN is a growth company, I give that. But the growth is limited and it should be valued just like any other company since it isn't unique in any sense. Let's say a growth rate of 150% and let's give a P/E ratio of 300. Get the idea? My main point is AMZN is a distribution channel, not a manufacturer of unique products. If they are efficient, they may have good margins. But my friend, there are going to be tons of competetors bringing down those margins. And competetion is universal on the Net. There is no monopoly there. AMZN isn't MSFT with monopoly and a technology base that cannot be thrown away. AMZN, my friend, is a shop, perhaps a good one. Are there any other business models for AMZN? Are they going to be a technology company? Are they going to be a shopping directory? Finally, I give it that they will have $10/share profit in five years (which is very unlikely). Let's say they will maintain an explosive growth rate of 70-80% in the future as well. Let's say a P/E of 100. What's the price? $1000/share in five years. That's a triple from here. The stock appreciation of about 25% per year. And what's the basis for $400 target? Go figure. This bubble will burst. It's only a matter of time. - JC