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Technology Stocks : eBay - Superb Internet Business Model -- Ignore unavailable to you. Want to Upgrade?

To: Doug Fowler who wrote (1184)	12/21/1998 7:12:00 AM
From: Robert Rose	Read Replies (2) \| Respond to of 7772

San Jose Mercury News, San Jose California Note paragraphs on ebay. Remember, we heard it first on this thread. Thanks Doug! --------------------------------------------------------------------- Posted at 4:37 p.m. PST Sunday, December 20, 1998 Got Net stocks? Hang onto parachute BY ADAM LASHINSKY Mercury News Staff Writer WATCH for cracks. Greater fools repeatedly have bet against Internet stocks and lost over the last 12 months on the assumption that companies like Amazon.com Inc. (Nasdaq, AMZN), eBay Inc. (Nasdaq, EBAY) and Yahoo Inc. (Nasdaq, YHOO) don't deserve valuations in the billions of dollars. There is absolutely no sign the dam is about to break. But the gamblers who are staking fresh money on risky wagers had better monitor these companies for the slightest sign of bad news. Unprofitable -- or barely profitable -- companies with valuations many times that of decades-old institutions will be afforded no slack when the first sign of trouble appears. Consider last week's flap over Amazon, the online retailer of books, music and whatever else is likely to strike its fancy in coming months. Its stock traded up about $50 (to just below $300) in one day last week when analyst Henry M. Blodget of CIBC Oppenheimer Corp. told clients he thinks the stock will be worth $400 in the next 12 months. Jonathan Cohen, Blodget's competitor at Merrill Lynch & Co. (a far more influential firm both with retail investors and investment-banking clients) countered that Amazon is ''structurally disadvantaged'' against existing retailers and will be plagued for the foreseeable future by ''painfully thin operating margins.'' Cohen thinks Amazon's stock is worth more like $50. This must be the first time in the history of Wall Street that analysts for established brokerages are $350 apart on their price targets for a stock. Drilling down into what both analysts are saying, however, should yield reasons for worry for investors in all kinds of Internet companies. Blodget, a serious guy who's well-respected by institutions craving information on the Internet industry, quickly followed up his initial note to clients with another, more cautious, missive clarifying that he doesn't see $400 as a near-term price target (Amazon's stock closed Friday at $286.69, up 29 percent for the week). He also points out what will be a large, potentially negative event early next year: the possibility that the first quarter won't come close to matching the fourth quarter's holidays-induced performance. ''Because Amazon.com is a retailer, we consider it very likely that its business model will ultimately resemble that of other retailers in terms of quarterly revenue distribution,'' writes Blodget. ''This means it is likely that Amazon.com could post (first-quarter) revenue that is sequentially down from (the fourth quarter). Because this would be the first time in history that this happened, we believe the market could well perceive it as a negative, causing a significant near-term pullback.'' Cohen, for his part, calls Amazon's 1999 projected sales and marketing expenses of $210 million on sales of about $1 billion ''hideous'' and suggests the company may never win the type of operating margins America Online Inc. (NYSE, AOL) gets. Consider another strange Net occurrence last week. eBay, saying it's concerned that competitors are monitoring the data it posts to its site on the number of ongoing auctions, removed the aggregate numbers Thursday from its home page. There's another possible explanation for the removal, however. eBay's ongoing auctions reached a peak of 1.2 million earlier in the month but by late last week had declined to less than 900,000. ''Our numbers always slow down the week before Christmas because our site is people trading with other people,'' says Steve Westly, eBay's vice president for marketing and business development. ''People are spending more time with their friends and family.'' That ''always,'' of course, is based on three whole years of experience. If eBay's auctions don't bounce back in January, investors could panic. And for what it's worth, eBay decided a day later to restore the data because ''our core value is to be an open, honest site,'' says Westly. Ten years from now we probably won't be talking about ''Internet'' companies. We'll be talking about retailers, media outlets, banks and so on that use the Internet as a normal way of doing business. Normal businesses have seasonal fluctuations in their revenues and earnings. And their stock prices periodically move up and down. Normal companies get normal valuations, however. If the dam breaks on Internet-stock valuations, an umbrella won't be good enough.