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

To: Jenne who wrote (56043)	5/7/1999 10:25:00 PM
From: Bearded One	Read Replies (2) \| Respond to of 164684

Hubris and Tragedy: Here's a little story. Company X has a new product. This product is a great idea. Sales take off. The company X becomes hyped by happy analysts and the stock goes through the roof. Analysts say that X is going to dominate its industry and keep pushing their stock price projections higher and higher. What happens next? What happens is that the management has a problem. If they come out and say the truth: “No, we're not worth a fraction of our current valuation,” then they will get blasted by their market makers. They might even get sued. Their employees will not understand and will grow despondent. So management publically agrees with the analysts or at least keeps silent in the wake of their growing fame. Having made a deal with the Devil and not told the truth, management then makes the fatal error- they start to grow their company to try to fit the public's wild expectations. No deal is too risky. No expansion is too radical. So they expand into new product areas where there is no proven market or no proven ability for them to compete. During this growth phase they naturally tell everyone not to expect too much in the way of profitability---after all, they're a growing company and can't be expected to think about making money. So they grow bigger and bigger, generating more revenues and temporarily satisfying the public But after a while people start to realize that maybe the new product lines aren't doing so well. Maybe there is a limit to economies of scale. Maybe revenue growth does not always ensure later profitability. Maybe the new markets aren't that big. Maybe the company's new products and buyouts aren't signs of growth, but rather of desperation, an attempt to keep moving the goal line so that nobody will notice that the milestones projected last year are not going to be met this year. As people realize this, the stock starts to drop. The die-hards, the analysts with a vested interest, and the simply gullible say “Stay the course!” “Have faith!” The stock rebounds and everyone cheers. But not for long and the company and stock continues to decline. Like a Shakespearean tragedy, the scenes of destruction in Act V were foretold a long time earlier in the middle acts. Only the actors themselves don't realize it. So it was with a company by the name of Iomega, now at one tenth of its high, laying off people, and sinking fast. It believed the public's hype about the Zip drive, moved into other product areas, and bled resources. So it is now with a company named Amazon. Bearded One