NEWS AND COMMENTARY
July 27, 2000
Amazon.com Shares Decline After Sales Miss Forecasts
By Heather Landy, Bloomberg
Amazon.bomb's Woes Continue ... Weiss comments
SEATTLE - Amazon.com Inc. shares fell as much as 17 percent after second-quarter sales at the biggest Internet retailer fell short of forecasts. Its loss more than doubled, bringing the company's total losses to $1.5 billion over six years.
The stock fell 5 5/8 to 30 7/16 in late morning trading after touching 30 1/16, the lowest price since November 1998. Several analysts cut their ratings on the stock, including Merrill Lynch & Co.'s Henry Blodget, who lowered his rating to "near-term accumulate" from "near-term buy."
Sales growth is slowing at the money-losing retailer, which yesterday reported second-quarter revenue of $577.9 million. That was below the $585 million average estimate of analysts polled by First Call/Thomson Financial, and was less than a 1 percent gain from the first quarter. In 1999, sales from the first quarter to the second rose 7.1 percent. In 1998, they rose 33 percent.
"The company is susceptible to the ebbs and flows of the traditional retailing sector," said Deutsche Banc Alex. Brown analyst Jeetil Patel, who has a "market perform" rating on the shares. "Sales are strong in the second half and weaker in the first half."
Without stores to promote itself, Amazon.com has to find ways to fuel spending on its Web site, particularly in the months after the busy fourth-quarter holiday season, analysts said.
U.S. sales of books, music, and DVDs and videos rose just 4 percent from the first quarter and still represent two-thirds of total revenue. Meanwhile, with the exception of electronics, newly added items such as cookware, patio furniture and home-improvement supplies haven't caught on with customers as quickly as expected, analysts said.
Chief Executive Jeff Bezos, who founded the company in 1994 as an online bookseller, said Amazon.com will put more effort into getting its 22.5 million customers to buy newly added items.
Compared with the second quarter of last year, sales rose 84 percent. Bezos, who said he had expected a 90 percent gain, declined to identify the source of the shortfall.
The company's loss widened to $317.2 million, or 91 cents a share, from $138 million, or 43 cents, Amazon.com said yesterday after the close of regular U.S. trading.
Excluding merger-related costs such as the amortization of goodwill, the company's second-quarter loss widened to $115.7 million, or 33 cents a share, from $82.8 million, or 26 cents.
On that basis, the company outperformed the average First Call forecast for a loss of 35 cents a share. Some money managers said that's not enough.
"The company needs to show investors at least some kind of concrete deadline for (positive) cash flow and earnings," said Paul Meeks, portfolio manager of the Merrill Lynch Global Technology Fund, which sold its Amazon.com holdings last year.
Bezos said lower costs from new automated warehouse systems and increased marketing efforts directed at existing customers would help Amazon.com reach profitability. He didn't say when the company would start making money.
The stock, which has fallen more than two-thirds from its high of 113 in December, was downgraded to "hold" from "strong buy" by Prudential Securities analyst Mark Rowen, and to "buy" from "strong buy" by SG Cowen analyst Scott Reamer.
Robertson Stephens analyst Lauren Cooks Levitan lowered her rating to long-term "attractive" from "buy," and analyst Steve Weinstein of Pacific Crest Securities cut his rating to "market perform" from "strong buy."
Those reductions followed two others earlier in the week. Lehman Brothers analyst Holly Becker yesterday lowered her rating to "hold" from "buy" and wrote in a report of "throwing in the towel" on Amazon.com. Banc of America Securities analyst Tom Courtney cut his rating a day earlier, to "buy" from "strong buy."
"We could see some problems for the biggest companies on the Internet," said Patrick Perret, head of U.S. equities at Pictet & Cie. in Geneva, which has about $80 billion in stocks and bonds worldwide, including some Amazon.com shares. "The Internet is a bit of a concern because there's been a lot of capital spending."
Amazon.com, or Amazon.bomb as we refer to it, has yet to earn a dime. From these forecasts, it's difficult to predict when it ever will. In fact, for every book it sells, it loses money. Sure the company sells some great merchandise and is known for good customer service, but it is poorly managed and wallowing in debt. It won't be long before this e-tailer closes its virtual doors.