Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Glenn D. Rudolph who wrote (56066)	5/8/1999 10:48:00 AM
From: tonyt	Read Replies (1) \| Respond to of 164684

Barrons Mailbag: Amazin' Amazon To the Editor I'm writing in reference to Alan Abelson's item on Amazon.com (Up & Down Wall Street, May 3). As your publication has often written, Amazon's stock price seems to defy any logic. But in that respect, the history of investments is littered with fads and manias, so there's nothing really unusual. What is more troublesome to me is to see how these companies are being embraced by Wall Street analysts. I listened to a conference call held over the Internet by one analyst, following the realease of Amazon's first-quarter results. This analyst has a Strong Buy rating for Amazon, with a $280 price target over the next 12 months. Asked how he reconciled the price target with Amazon's near-term prospect of increasing losses, he defended its business model and the price target by stating that the company is extending its market share lead and that he projected revenues of $10 billion within the next five years. Assuming that Amazon will, in fact, reach $10 billion in sales in five years (versus current quarterly annualized sales of $1.2 billion) and assuming a generous 22% gross profit margin, I derive $2.2 billion in gross profits. I have also assumed that Amazon's pre-tax profit will equal its gross profit; in other words, that the company will have no expenses other than its cost of goods sold and that net after tax should amount to $1.43 billion. While Amazon currently has about 160 million shares, fully diluted, it also has 38 million employee options, vesting over the next few years, at an average price of about $13. So, even ignoring the conversion of the $1.25 billion of subordinated debt (convertible into an additional eight million shares), the company, in five years, conservatively will have at least 198 million shares outstanding. Based on the unrealistically optimistic assumptions above, Amazon's 2004 earnings would reach $7.22 a share. This means the stock is trading today at 24 times 2004 EPS, while according to the analyst in the online conference call, it should trade at 39 times that figure. ANTONIO MARZIALE Houston To the Editor Alan Abelson's biting analysis of Amazon.com is well-taken. However, arriving at an ultimate price based on a multiple of twice or even one times sales seems a mite too generous. Considering that a profitable Barnes & Nobles sells at only 80% of revenues and taking into account the fact that not a scintilla of evidence shows that Amazon ever will make money, it is not so fanciful to come up with a $1 price tag for this currently highflying stock in a few years' time. ALBERT ANY Larchmont, New York