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December 16, 1998
A $400 Target Gives Amazon
An Even Bigger Push Skyward
An INTERACTIVE JOURNAL News Roundup
Shares of Amazon.com rocketed Wednesday after CIBC Oppenheimer analyst
Henry Blodget lifted his long-term price target on the stock to $400
from $150, spurring a rally in the already-euphoric Internet-retail
sector.
Mr. Blodget, who continues to rate the stock a "buy," said in a research
note that Amazon's shares recently passed his price target of $150.
In trading on the Nasdaq Stock Market Wednesday, shares of Amazon rose
46 1/4, or 19%, to 289 in heavy volume. Meanwhile, the Nasdaq Composite
Index slipped 3.24 to 2009.36, while Morgan Stanley's high-tech 35 index
eased 1.48 at 775.42.
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Mr. Blodget said early Wednesday that he believes Amazon "is in the
early stages of building a global electronic-retailing franchise that
could generate $10 billion in revenue and earnings-per-share of $10
within five years."
In his research report, Mr. Blodget noted that, since he initiated
coverage on Amazon three months ago, the company has reported
third-quarter results that beat expectations and has become the largest
online music retailer only one quarter after opening its online music
store.
The company has also continued to expand the types of products it sells
to include videos and gifts, and has introduced a comparison-shopping
service and the "GiftClick" service, which allows customers to send
gifts by clicking on the recipient's e-mail address.
Amazon indicated that the number of orders on the day after Thanksgiving
this year was four times greater than a year earlier, Mr. Blodget added.
In his research note, Mr. Blodget said he believes that while Amazon's
stock is "incredibly expensive relative to near-term expectations" and
"scary to buy," the company's long-term opportunity is large enough to
support a market capitalization much higher than current levels.
The analyst pointed out that Amazon's revenue is currently growing
faster than 300% per year. He added that the company's operating margins
could ultimately exceed 10% "if the promise of digital delivery of
music, books, software and other products comes closer to reality over
the next several years."
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Mr. Blodget said he believes the adoption of electronic commerce is
lagging that of online access by a year or more -- suggesting that the
rapid growth of the Internet over the past few years will drive strong
growth in online commerce in the years ahead.
Mr. Blodget therefore believes that Amazon's stock is in earlier part of
its growth cycle than other high-profile Internet stocks like Yahoo! and
America Online.
Amazon has yet to prove that it will ever make money, which has led to
enormous controversy around its stock valuation. But Mr. Blodget
maintained that Amazon "will one day make a lot of money" and said that
if his aggressive growth scenario stays on track over the next 12
months, the stock's upward momentum should not reverse itself.
Keith E. Benjamin, an analyst with BancBoston Robertson Stephens,
confirmed that the new target on Amazon was the likely catalyst behind
the e-commerce sector movement Wednesday.
He cautioned however, that online retail stocks "seem to be easily
swayed when there's any kind of news."
The analyst added that, while there's no way as yet of measuring the
potential growth of commerce on the Net, expecting such staggering price
growth, even from a sector leader, may be a little impetuous.
"Trying to justify a $400 price target is an irresponsible exercise in
my view," Mr. Benjamin said.
He was joined in that position by Lise Buyer, an analyst at Credit
Suisse First Boston.
"Why stop there?" she joked. While adding that she agreed with
Oppenheimer's assessment that the general direction of movement in
Amazon's shares would be "up and to the right," she said that she wasn't
convinced there was any rational basis for such a call.
"It is not realistic to say that any of us can see out that far with any
degree of accuracy," Ms. Buyer said. "No one should be confused that
there's any degree of certainty in a prediction of that kind."
Later in the day, Mr. Blodget said in a "clarification" that his new
price objective is a one-year -- and not a near-term -- target.
Mr. Blodget said Amazon, like other Internet stocks, is extremely
volatile and is like to advance in a "three-steps-forward,
two-steps-back fashion." He added that the stock's recent advance "looks
a lot more like four steps forward" and that he would therefore not be
surprised to see a significant pullback in Amazon's stock at some point.
In addition, Mr. Blodget said that because Amazon is a retailer, its
business model will ultimately resemble that of other retailers.
The company could therefore post a sequential decline in revenue in the
first quarter, which could cause a significant pullback in the stock
since this would be the first sequential revenue decline in the
company's history.
"We would not, therefore, go hog-wild with the stock at current levels
in the expectation that it will go straight up from here," Mr. Blodget
said. "An investment in the shares clearly requires a strong stomach and
a great deal of faith."
The strength in Amazon's stock also lifted the shares of a number of
other e-commerce stocks Wednesday.
In fact, Amazon was only the second-most-traded issue on Nasdaq
Wednesday. The top spot was taken by Books-A-Million, another online
retailer, whose stock soared 80%, or 8 1/16, to 18 1/8. The company
announced plans to acquire NetCentral. of Nashville, Tenn., for an
undisclosed amount. NetCentral designed the new Books-A-Million Web
site.
Shares of computer-products retailer Egghead.com advanced 1 1/16 at 21,
while shares of online-auction operator eBay climbed 29 1/2, or 15%, to
223 1/2 and Ubid also gained ground, climbing 2 1/8 to 36 15/16.
Even shares of Amazon's fiercest competitor in the online bookselling
business, Barnes & Noble, moved ahead 1 3/4 to 32.
But Amazon's competitors in the online music market, CDnow and N2K, were
lower. CDnow's shares slipped 1/16 to 17 5/8, while N2K's shares fell
9/16 to 13 1/2. CDnow and N2K are merging largely to better compete with
Amazon.
Amazon and other Net retailers got yet another boost Wednesday, when
America Online said its 1998 holiday shopping traffic has been 3.5 times
above last year's levels.
In a press release, the company said it has attracted 750,000 new
shoppers this holiday season, and those shoppers have purchased an
average of two items a week, with each purchase averaging $54.
Wednesday's Market Activity
Elsewhere in the technology sector, Perfumania skidded 1/8 to 2 3/4
after the company said it formed an Internet division and plans to open
an online store. In a press release, the company said it expects the
online store to be fully operational by Feb. 1. Perfumania said it plans
to give sales personnel incentive commissions for motivating in-store
customers to shop online, and will distribute bonus cards to in-store
shoppers for online store promotions and discounts.
Shares of Seattle Filmworks climbed 1 15/16, or 65%, to 4 15/16 on
Nasdaq after the company signed an agreement to provide Excite users
with free photo scanning and Web posting when they purchase film
processing from the company. Users of Excite's portal will be able to
find their photos archived in a private area on the Web in addition to
receiving prints in the mail.
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