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

To: IceShark who wrote (38516)	2/7/1999 11:12:00 AM
From: Glenn D. Rudolph	Respond to of 164684

11 multiple on forward earnings (discounted back) reflective of Amazon's leadership status. We arrive at our $195 price target based on a discounted revenue multiple of 10-15Xs 2002 revenue of $3.3 billion, discounted back using an appropriate discount rate (based on an 25% debt to market cap assumption. This compares to forward revenue multiples that range from 6Xs to 30Xs (and have a mean of 20Xs) for Internet leaders like Yahoo, AOL, Geocities, Broadcast.com, and @Home and 2Xs-10Xs against “pure” Internet commerce concerns like Preview Travel, Beyond.com, and E*Trade. Is Amazon worth more than these commerce peers? You bet, for all the reasons we lay out above. And though we stress that the comparison with the AOL's, Yahoo!'s and @Home's of the world are less than apple-to-apple, we've long made the case that Internet Blue Chips deserve premium valuations relative to their peers, and Amazon is one of the best examples out there an Internet Blue Chip. We also arrive at the same target by discounting back 2002 earnings of $2.44 and applying a standard earnings growth rate multiple to that figure. For copies of the models describing this valuation methodology in full detail, please contact your SG Cowen salesperson or a member of our research team. What Keeps Us Up At Night With A Stock As Volatile And Heady As This One? Plenty There are lots of wildcards to the Amazon business model that investors will be concentrating on over the next several quarters, including (1) the ability of the Amazon management team to find suitable investments in infrastructure to grow the business (after all, how many mechanized distribution facilities are there to be scooped up in the continental US?), (2) managing the growth in the customer base without quality of service suffering (remember how much trouble AOL had on this front just a few short years ago?); (3) competition from Barnesandnoble.com and Bertelsmann AG. Though there is a growing consensus that Amazon has laid out a sober and logical plan to increase their profitability longer term, supplier, competitive, and marketing dynamics may dictate the level of profitability, and not management, over the next handful of quarters. And though we think this may have no lasting negative impact on the stock, any or all of these things could provide for some shocking hiccups in the near term. What To Do With The Stock At These Levels? Buy It. Though we highlighted some of the risks above, we think there is every reason to be optimistic about Amazon's prospects going forward, remember that: (1) customer additions are great leading indicators of future revenue generating capacity, (2) music, video, and international store success augurs well for their emerging “Shop The Web” efforts (3) management's skill sets, paranoia, and ability to execute are alive and well (one had only to listen to the various hedge clauses and risks that were highlighted to get a sense of this paranoia) and (4) Amazon is (rightly and logically) investing more today against their commerce portal strategy with each new data point they get in about how leveragable their model is. In our view, the stock should still be driven by the growth and visibility of the top line and the customer additions going forward, both of which, almost inexplicably given the outsized surprise in December, could be even better in 1H:99 than it was in 2H:98. Avoid All Eye Contract With The Trees…Keep Focused On The Forest. Amazon has been, and most certainly will continue to be, extremely volatile, a point Jeff Bezos felt strongly enough about to comment about the responsibility of being a momentum trader in this name. Though the near term may still be driven by the results of their operating plan, the Street's psychology toward Internet names and the float may still keep it acting