The Amazon.com Debate, Round II
Internet stocks jumped Thursday afternoon as good tidings towards holiday online shopping overshadowed Merrill Lynch's lump of coal for Amazon.com.
In remarks to Merrill Lynch's retail broker network, analyst Jonathan Cohen said his current price target for Amazon is $50 a share - less than a fifth of the stock's current price, and a fraction of the $400 12-month target price set Wednesday by CIBC Oppenheimer analyst Henry Blodget.
Shares of Amazon closed Thursday at 276 3/4, down 12 1/4.
"In our view there has no change in the fundamentals to justify the current share price," Cohen said in a conference call, Merrill officials confirmed."We do not believe the shares are trading on [Amazon's] current fundamentals and maintain our intermediate term 'reduce' and long-term 'neutral' opinion on the stock."
Blodget said in his report that the Seattle-based company could post a staggering $10 billion in annual revenue within five years. The company's revenue now is a fraction of that and it has no profits.
After the close of trading, Cohen and Blodget defended their opposing views in a CNBC interview.
Cohen expressed concern that Amazon is vulnerable because its primary focus, selling books, "is inherently a low-margin business." Amazon may have difficulty "selling a commodity product in a competitive environment," Cohen said.
Blodget said he believes Amazon's mix of products, which includes music, videos and gifts, has the potential to become addictive to consumers. He said he expects Amazon to turn a profit in 2000 or 2001.
Before trading began on Thursday, Amazon's stock also was downgraded to "hold" from "outperform" by analyst Miles Russ of Wheat First Union.
"The hype surrounding the holiday retailing season on the Internet scares me," Russ told CBS.MarketWatch.com.
Still, he said, the company has reached a status that ranks it with "true Internet heavyweights," such as America Online (AOL) and Yahoo! (YHOO).
Shares of Yahoo! rose 3/8 to close at 205 1/2. AOL ws up 2 15/16 closing at 99 1/8. It was the second-most actively traded issue on the New York Stock Exchange with 11 million shares changing hands.
Other Internet commerce leaders also showed strength: Lycos (LCOS) gained 5/16 to close at 53 3/4, EBay (EBAY) was up 14 13/16 to 238 5/16 and Excite (XCIT) rose 1/8, closing at 50 3/16.
On Wednesday, shares of Amazon.com rose as much as $59. While Internet stocks routinely soar on hopes for an eventual windfall in profits, the gain in Amazon's price Wednesday was one of the largest jumps in the short history of the Internet.
Amazon is scheduled to split its stock 3-for-1 on Jan. 5.
Amazon.com shares were as high as $301.75 Wednesday on the Nasdaq Stock Market. They slipped back a bit to close at $289, a $46.25 gain.
As Internet stocks tend to be volatile, giant price leaps in a single day are not unusual, but Amazon's leap in dollar value "is really phenomenal," said Steve Harmon, senior investment analyst for Internet.com., a New York-based research company.
Except for initial public offerings, Wednesday's gain in Amazon.com's price was "the largest dollar amount in an Internet stock that I've ever seen," Harmon said.
Amazon.com, like most other Internet stocks, hasn't made a dime in its short life. But the company's prospects improved with recent plans to sell a wider range of products.
Last summer, the company announced a deal to buy Junglee, a firm that provides a one-stop comparison-shopping service to users of some of the most popular Web sites. In the latest outgrowth of that acquisition, Amazon.com agreed to include a link on its Web site to Cyberian Outpost Inc., an Internet seller of computers and software.
"My perception is they are using the opportunity they have in front of them to build a very solid long-term business," said Derek Brown, an analyst with Volpe Brown Whelan & Co., a San Francisco-based investment firm. He predicts the company will start making money in late 2000.
Still, the uncertainty is great amid an increasingly cluttered Web field.
Amazon.com's chief rival, Barnes & Nobles, opened its online business last year. Also last year, software seller Egghead closed its money-losing brick-and-mortar retail stores and renamed itself Egghead.com to focus completely on sales over the Internet.