Last modified: April 8, 1998 5:00 AM PDT
Why the Street loves Amazon.com
When investors bid up Internet stocks last week, only the profitable Yahoo (YHOO) soared higher than the Net's biggest bookstore. While Yahoo hit 105 a share, Amazon closed at 95--a mere 11 months after it went public at 18. It settled back to 85-1/4 as of yesterday.
Although Wall Street analysts sound almost sheepish about Amazon's high valuation, many are still bullish on the stock's long-term prospects.
"Based on current fundamentals, it's hard to justify $90 a share," said Mitchell Bartlett, who follows retail stocks for Dain Rauscher Wessels. "The market is saying, 'Electronic commerce is very real.' While it's very difficult to conceptualize e-commerce five or seven years down the road, these guys have a significant advantage at this point."
Added Steve Horen of NationsBanc Montgomery Securities: "I wouldn't
Amazon CEO Jeff Bezos on the potential of the Internet
Financial analysts have roundly praised Amazon for its two-year head start, a brand name that continues to attract new customers, prospects for adding music CDs and videos to its virtual shelves, and plans for foreign expansion (most likely in Germany and Japan.
Amazon's low overhead and well-regarded management team don't hurt, either.
Bret Bullington, executive vice president at Amazon partner Excite, lauded the company's executive corps. "They make instinctively good calls about what are the most valued things to affect their business," he said. "That's hard to do when things are happening fast."
So fast, in fact, that headhunters already have lured away Amazon's former vice president of marketing, Mark Breier, to become CEO of Web software store software.net.
Breier, for his part, still has some thoughts about the company he left behind. "Amazon's biggest challenge is simply scaling [in size to meet rapid growth] systems, people, transactions systems, marketing, and database systems," he said last week. "But Jeff [Bezos, Amazon.com's founder, CEO, and largest shareholder] has been quoted before as saying that Amazon's key competency is scaling."
A January outage that closed Amazon's site for nearly 12 hours revealed the young company's vulnerability for the first time, and growing competition from brick-and-mortar book giants moving to the Net are putting the company to the test.
Barnes & Noble (BKS), for example, tried, but failed, to disrupt Amazon's IPO, launching its Web storefront just weeks after Amazon filed to go public, then suing the start-up just days before the offering. Neither side will talk about the lawsuit, which eventually was settled.
Barnes & Noble--with $2 billion-plus in revenues last year, compared with Amazon's $147 million--soon will be joined in taking on Amazon by Borders, another book superstore that cut its teeth in the physical world, which is expected to launch its site later this month. Also joining the competition is giant direct marketer Cendant (CD), formerly CUC International, which reportedly is sprucing up the Books.com's online operation that it bought last year.
While Bezos is mindful of
Bezos on Amazon's early success
"We were estimating that we were about four times larger, and it turns out that we are about 8-1/2 times larger than they are," Bezos said, citing his rival's recently released Internet sales figures.
"We generate more than $300,000 per year in revenues per operating employee," he added. "A traditional bookstore makes about $95,000 per operating employee."