[Category: Stock Market]

That one out of the 32 analysts surveyed rate Amazon.com a "sell" would seem to suggest that the company is in some difficulty.

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From Bloomberg

[For educational/research purposes only]

Fri, 23 Jun 2000, 12:45pm EDT

Amazon.com Plunges on Concern About Cash, Competition (Update1) by Heather Landy

Seattle, June 23 (Bloomberg) -- Amazon.com Inc. shares fell as much as 23 percent, their largest drop ever, on concern the Internet's biggest retailer may run out of cash and face intense competition this Christmas holiday season.

The stock plunged 8 15/16, or 21 percent, to 33 1/16 in late morning trading. Amazon.com earlier fell to 32 1/2, the lowest level since December 1998. The shares have tumbled from a high of 113 six months ago, wiping out $28 billion in market value.

Amazon.com has $1.08 billion in cash and is burning through $115.7 million a month, according to Bloomberg analytics, meaning it could run out of money in nine months. Through the end of the first quarter, the six-year-old company's losses totaled $1.2 billion. For some investors, the stock became too pricey relative to financial performance, especially following April's plunge in technology stocks.

``Amazon.com any way you cut it is a very speculative name, and not the kind of name we wanted to hold in a bad market,'' said Strong Funds money manager Drew Cupps, who sold his shares six weeks ago. The firm owned 382,400 shares as of September.

While Seattle-based Amazon.com has established a brand name and more than 20 million customers, its expenses and debt are mounting. The company must generate enough cash flow to grow, or keep raising capital, said Lehman Brothers analyst Ravi Suria.

``Going into what is arguably the most challenging holiday season, we believe that the combination of negative cash flow, poor working capital management and high debt load ... will put the company under extremely high risk,'' Suria wrote in a report.

He recommends avoiding Amazon.com's convertible bonds. Convertible debt holders typically are senior to equity holders. Amazon.com has raised more than $2.3 billion on the debt and convertible markets during the past two years, he wrote.

Cash Crunch?

Amazon.com's stock also was hurt by speculation about comments reportedly made by analyst Mary Meeker of Morgan Stanley Dean Witter. CNBC, citing trading desks, said Meeker made ``cautious'' comments about Amazon.com. Morgan Stanley spokespeople said they were unaware of any reports issued by the analyst, who couldn't be reached for comment.

Not everyone is concerned that Amazon.com will run out of cash anytime soon.

McDonald & Co. analyst Sasha Kostadinov said he expects the company to have operating losses of $340 million this year and $137 million next year, plus interest expenses of $92 million in each period.

That still would leave the company with enough cash for this year and next, and the company could benefit from additional improvements on the balance sheet, he said.

The decline in the stock is an overreaction, he said.

``If I'm an Amazon.com shareholder and I believe in the long- term viability of e-commerce, I'm going to look at this as a buying opportunity,'' said Kostadinov, who rates the stock an ``aggressive buy.''

About 23 analysts rate Amazon.com a ``buy,'' according to Bloomberg analytics. Eight rate it a ``hold'' and one calls it a ``sell.''

Amazon.com was formed in 1994 and began selling books on the Internet in 1995. The company went public two years later, and has since expanded its offering to include toys, electronics, patio furniture and other merchandise.

-- David L (bumpkin@dnet.net), June 23, 2000