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

To: 16yearcycle who wrote (57700)	5/21/1999 10:24:00 AM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

AMAZON ˆ CONFUSION OVER PRICE CUTS After Amazon announced it would offer a deeper discount of 50% off New York Times bestsellers, it appeared some investors ran for the hills on concerns of a price war heating up. While this move is likely to impact gross margin percent in the near term, we believe the long-term outcome is likely to be one of strengthening Amazon‚s significant e-tailing presence. Amazon is clearly the price leader in the space and has an increased ability to be competitive on prices given its growing direct purchases from publishers. Online competitors immediately matched their discount, some of them cutting even deeper. Buy.com went so far as to undercut Amazon by 20-30% on some titles. We view this counterattack as 20-30% less margin on no margin at all. According to April Media Metrix data, Buy.com‚s reach dropped over 17% from March, such that we are still unconvinced that consumer propositions based primarily on price can succeed long-term. Consumers are already choosing the higher quality shopping experience and reliable service they get from Amazon over purely low prices. In addition, as an increasingly diversified e-tailer, Amazon can use the sharply priced bestsellers as part of a loss leader strategy to generate more traffic to its site, collect more customer information, and drive greater sales from its multiple product categories. We feel the vertical eTailers and those with limited content offerings are the most susceptible to competitive pricing pressures. Finally, as Amazon diversifies its business model to include a larger percentage of higher margin fee-based revenues, we believe margin pressure from aggressive pricing could be alleviated. Our conclusion is that Amazon remains the best positioned eTailer and believe current weakness creates a compelling entry point for investors. STOCK PRICES WILL EVENTUALLY BE TIED TO FUNDAMENTALS ˆ In our view, stock prices will tend to mirror underlying fundamentals over time. Our challenge is sorting through the short-term craziness of stock price patterns that seem unlinked to any traditional measures of value. We have tended to focus on finding the biggest franchises as a proxy for finding companies likely to be worth more eventually. Our best example this week is Ticketmaster Online / CitySearch, which is just emerging from under the shadow of the Lycos deal, with greatly improved prospects, in our view. Amazon remains our top eTailing pick.