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

To: Jan Crawley who wrote (44346)	3/7/1999 12:27:00 PM
From: Frost Byte	Read Replies (1) \| Respond to of 164684

Nick Moore's opinion on AMZN: Nick Moore: Well, no. Let's look at that business elementally 'cause it's very instructive about the Internet. And the long story short, they can be profitable anytime they want to, OK? They've won that battle. You can't have the hyper growth and profits today. When the hyper growth winds down, they can be profitable, but I wouldn't be surprised if they did a profitable quarter at the end of this year if they had the same sort of sequential uptick, but maybe that's next year. Let's look at that business 'cause if they were just books -- right? -- $18 billion market in the U.S. They had had 2% or 3% in net-profit-on-the-dollar sales, right? So that's -- what? -- $500 million if you add the whole thing. And pare that down 'cause they won't get it all. You'll still buy books in the airport and so on. Maybe they'll go into that. The... Kansas: Three percent net or gross? Moore: Net profits, 'cause they have 22%, 23% gross margins, just like a disk-drive company, right? The thing is they only have -- today they're generating 200 and -- what? -- 20 million run rate in gross margin dollars. That's their value added economically. They've only deployed $60 million into the business, right? There's $29 million in inventories, $29 million in property plant equipment, no accounts receivable. They don't even break it out of the line item because it's all by Visa. One-day-one-day collections. So there's no capital in that business. So we can compare them to merchants and say this is a much higher-ROE business. If they wanted to kick over that 3% net profit now, you'd have a 50% ROE, right? Just like that. And you want to invest in companies with a 50% cash ROE, right? It's a huge business model. Nick Moore The other thing is: What is Amazon, really? This is consumer software. There aren't gonna be very many players. You could talk price all day. You have to learn Amazon's site, you know. Are you really gonna go learn barnesandnoble to save 20 cents on a book? No, not particularly, when you're gonna sooner or later discover garden.com. You're gonna be going to CNN or TheStreet.com for news. You're gonna be less and less tolerant of switching sites, just like we've always been with every other form of software. So they can defend their turf, I think, without spending a billion dollars on promotions. You know, there will be some things that go on here and there, but I think mostly the people who come in to compete on price are gonna miss the point. Every low-priced software company in history has failed. You can look at all the software companies named Platinum, companies like The Learning Company (TLC:NYSE) have all been -- Borland -- have all been splattered, every single one, 'cause the value of learning how to navigate a piece of software is invariably too high.