For those of you who were too young to understand the dot com era and how hated/loved the dot coms were, I’ve decided post articles from way back in the day, for two reasons.
1. To demonstrate how hated and wrong pundits can be. If you believe in something, backed by intelligent research, ignore the skeptics.
2. Pure comedy relief.
By the way, AMZN used to trade nuts when it first IPOd. I’d trade in and out of it, wild swings and very, very illiquid. Like AMER (or AOL), no one believed they could pull it off and constantly doubted them.
I give you Amazon.com High on IPO. So Is its Valuation:
Online bookseller Amazon.com‘s push to sell some 3 million shares for as much as US$13 per share would value the company at $300 million – a pretty penny for a firm that lost about $6 million last year. And Amazon.com’s prospectus suggests those losses could grow larger.
Bill Bass, an analyst at Forrester Research, attributed the high valuation to “Internet inhalant” – the extra high that Net-related stock offerings can carry with investors. “Some people smoke Internet inhalant and their judgment gets bizarre,” Bass said.
Whatever else, Seattle-based Amazon.com approaches its initial public offering with the heady glow of having carved out a niche as the Web’s leading bookstore. The company offers more than 2.5 million titles, as well as CDs, videotapes, and audiotapes. Sales last year reached approximately $16 million, compared with just over $511,000 a year earlier. The company pioneered low-overhead book sales on the Web – by keeping inventory at a minimum and avoiding costly retail outlets, Amazon.com is able to sell large quantities of books at a substantial discount to cover price.
The trouble is, Amazon.com is filing just when some dark clouds are gathering on the horizon. The company’s prospectus contained a stock phrase among Internet start-ups about sustaining operating losses for the forseeable future, but follows with another, more unsettling caveat: “The rate at which such losses will be incurred will increase significantly from current levels, and its recent revenue growth rates are not sustainable and will decrease in the future.”
In short, Amazon.com has thrived as the only game in town, but its fortunes may soon be challenged by gatecrashers such as Barnes & Noble, Simon & Schuster, and Borders, who are enhancing their online presence. Barnes & Noble opened its first online bookstore on America Online last week and plans a presence on the Web later this year. The book giant, which has driven many independent booksellers out of business, announced predatory discounts of up to 30 percent for many hot titles, which Amazon.com boldly trumped by slashing 40 percent from its own bestseller prices.
That may prove to be a shrewd business strategy for Amazon.com. It understands online book sales better than anyone thanks to its lead-time on the Net. But it may be a costly financial move, since it will delay the company’s move into the black at a time when investors are losing patience with Internet companies long on promise but short on profits.
The big boys also have hefty profits from their superstores to protect them from the bruising that a price war can inflict. Barnes & Noble’s stores took in $883 million in the fourth quarter alone, while Borders took in $342 million. Those dollars will buy a lot more band-aids than the $8.5 million Amazon.com took in for the same period. And while Amazon.com will have lots of cash to cushion it during the rocky times ahead, much of the money will go to offset the $6 million operating loss the company has racked up so far.
What’s more, the knowledge gap between Amazon.com and Barnes & Noble may narrow faster than Amazon.com would like. Its founder and CEO Jeffrey Bezos is a computer whiz-kid from Bankers Trust, not a bookseller. Amazon.com has only one person with a book background among its executives – Scott Lipsky – who joined the company from Barnes & Noble.
In its favor, Amazon.com has a unique goodwill among Net shoppers that corporate giants will find hard to invoke for themselves. And, as Bass points out, an edge than only a hungry start-up can offer. “If they don’t make online work, they don’t eat,” Bass said. “Fear of bankruptcy really focuses the mind.”
In the end, it may be Amazon.com’s focus on the Internet that gives it the upper hand. “Let’s say Borders has a couple of billion in sales,” Bass said. “Online they do only what Amazon does. Their CEO will focus on retail because that’s where they’re making the most money.”
Amazon.com is now in the “quiet period” that by law must precede a stock offering, which means the company must refrain from commenting on the pending IPO. “We will wait for the review by the SEC and move forward,” said Jennifer Cast, an Amazon.com spokeswoman.
The share offering will be underwritten by Deutsche Morgan Grenfell, along with Alex Brown & Sons and Hambrecht & Quist. The shares would be traded on the Nasdaq Stock Market under the symbol AMZN.
Amazon is now valued at $144 billion.