February 15, 2001
Prudential Says Time To Sell Amazon
Stock May Be Worth 'Less Than Meets The Eye'
By Susan Lerner, CBS.MarketWatch.com
Analyst Catches Up With Our Amazon Downgrade -- Nearly Two Years Late! ... Weiss comments
NEW YORK - What a gentleman Prudential analyst Mark Rowen is - he waited until after Valentine's Day to "break up" with Amazon.com. But, then again, as with Puffy and J. Lo, the signs were there.
Rowen gave the stock the boot, cutting his rating on the e-tailer to "sell" from "hold" and slashed his price target to $9 from $20.
Amazon shares were off just 6 cents, at $14.38 in early trading after dropping to a low of $13.50 shortly after the open.
"Anemic growth in AMZN's B/M/V (book/music/video) segment has caused us to re-examine its market valuation (and) we believe that AMZN's equity value is overextended and poses further downside risk to investors, even though the stock is off 87% from its all-time high," Rowen told clients.
In a sum-of-the-parts analysis, Rowen values the global B/M/V segment at about $3 billion. The remaining some $2 billion of Amazon's market value, he said, is an implicit valuation of the rest of the product categories though he finds it "hard to understand" why segments such as consumer electronics and toys should be valued at such a high level.
The fact that Rowen has left Amazon shouldn't come as too much of a shock.
In a Feb. 2 research note following Amazon's fourth-quarter results, Rowen had expressed disappointment in the numbers and concern over the "anemic" growth of the B/M/V segment. At the time, he also said customer churn rates appeared "problematic," raising questions about lifetime value of an Amazon customer.
We've been telling you to sell Amazon-dot-BOMB for nearly two years. In fact, we not only told you to sell all of your holdings in this company, we told you to short the stock and make some money. In the August 1999 issue of Safe Money we stated, "Amazon.com has already fallen 56% in less than 120 days ... And it's just the first phase. This is a great time to invest on the downside. In the next round of selling, you can expect these tech stocks to fall ANOTHER 50% or more!" Amazon plunged 87% from its split-adjusted high of $106 a share in December 1999 to around $14 a share today.
Despite the fact that the company has never turned a profit and will likely run out of operating cash before it makes one penny in real earnings, analysts continue to recommend the stock. At last count, 15 analyst firms still rate Amazon.com a buy or a strong buy. So, we'd like to congratulate this analyst for boldly coming out and finally letting investors know that Amazon is truly a dog. Mr. Rowen's ability to grasp the obvious is astounding. Too bad he didn't warn investors BEFORE the stock slid into the cellar.
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