Amazon Agonistes

With its stock down 66 percent, is still worth the trouble?

By Diane Seo

Published June 29, 2000 7:00PM (EDT) CEO Jeff Bezos joked Wednesday that "Amazon bashing" has turned into a national pastime, with some suggesting he rename his company "Amazon.con," "Amazon.toast" or "," since it has yet to post a profit.

The e-retailing executive spoke at the PC Expo in New York, only five days after a Lehman Brothers analyst said Amazon's credit was "extremely weak and deteriorating" (thanks to massive debt and negative operating cash flow). After the news, the stock lost 19 percent of its value. It's still trading only around $38, down 66 percent from December's $113 high.

Bezos used the tech-friendly platform to rebuff the Lehman report, saying the company has plenty of cash -- a billion to be exact -- and that getting additional funding will be a breeze. "I think good ideas will continue to be funded," he said.

The stock did rally this week, but hardly enough to halt its dramatic downward surge. I'm one of those shareholders who has lost a lot of money on Amazon stock -- let's just say enough for a trip around the world, dinner out for a year and many, many books from my much-beloved but long-suffering Web retailer.

It's depressing to have a piece of the big loser of the moment. Since I bought Amazon in March 1999 for a stock-split adjusted value of roughly $92 a share, it's down 59 percent.

In half a year, it went from da bomb to just a bomb.

Still, I resist the temptation to bolt. I have a gut feeling the company will survive this e-commerce air raid. Call me an idealist, but I believe in Amazon's core business; I think the told-you-so predictions of its demise are exaggerated. No company with 20 million customers just goes poof. Bezos and crew may need to cut costs and reach profitability before too long, but they're not destined to die, not with the Internet reinventing commerce every other day. This isn't entirely blind faith. A viable Web may still be years away. But when it happens, Amazon will be first in line.

Amazon does have serious problems, though. Its well-documented low profit margins, zero profits and a history of burning through mind-boggling amounts of cash are a drag. Despite $1.6 billion in revenue for 1999, Amazon lost $390 million during the year -- prompting some analysts to fear the company may simply run out of money.

Bezos isn't the only one insisting that's nonsense. A few analysts have come to its defense this week, reiterating their buy ratings on the stock.

But no one could deny that declining investor and V.C. support has devastated the Internet sector, with several companies going bankrupt in recent weeks. And Amazon has felt the pinch. So has a slew of smaller Net firms, including, and, all three of which Amazon partly owns.

The industry seems primed for less competition and more consolidation, which could be a good thing for Amazon. As Bezos said: "The new skepticism about dot-coms in the stock market is healthy. In 1999, every idea received backing; that's not necessarily a good thing."

But if Amazon buys out a competitor, it has to use more cash -- a key reason why investors are bailing. It's a tricky situation. It all comes down to a patience lesson for investors. But Amazon should be careful not to test this patience too long.

Amazon could become profitable next year. It says its U.S. books, music and video businesses will be in the black this year, and it has assured Wall Street that its operating losses will decrease each quarter.

Judging from its fourth-quarter losses of $185 million, that may be a bit optimistic. The company's financials still seem shaky. So, I keep my faith as a consumer.

Amazon has one of the most well-known and reputable brands on the Internet. Say "online shopping," and millions think of Amazon. The boom in wireless and hand-held devices also bodes well for the Seattle company, which expects to seize on the Palm Pilot buying trend.

I've spent hundreds of dollars on the site, mostly because I hate shopping. I like getting things in the mail far more than standing in line at a store. And Amazon offers a lot of merchandise for pretty decent prices. So far, I've bought CDs, books, electronics, toys and gift certificates. I've sampled music, read the book reviews and sent e-greeting cards. Through all of these transactions, not once has there been a glitch with customer service, shipping or credit-card paying. Everything's arrived on time, in perfect condition, in well-made corrugated cardboard boxes.

By comparison, I recently ordered candy from a little-known Web outfit, and it took more than a month for my $10 order to arrive because of a mistake with my zip code. By the time the box came, it was bashed up and the candy was stale.

Some of Amazon's new additions to the "Earth's Biggest Selection" do seem a bit off: lawn and patio? Tools and hardware? I don't have a garden, so maybe I'm not fully grasping the importance of getting a hoe online, but this seems like a bit of a stretch.

I guess what it comes down to is I like the way Amazon does business. But like other shareholders, I do find it disconcerting when it comes time for its quarterly lack-of-earnings reports. The company always puts on a good face, boasting about revenue and millions of new customers. But take a look at those losses, and you can't help thinking Bezos and company have been arrogantly lackadaisical about making money. Sure, it needs to expand beyond books, but shareholders won't stay on if it doesn't see black soon. As far as I'm concerned, Amazon's next chapter rests on one issue -- can it deliver on its financial promises as well as it delivers toys, CDs and books?

Diane Seo

Diane Seo is the senior business editor at Salon.


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