An Amazon bull pulls back

Merrill Lynch analyst Henry Blodget, one of Amazon.com's most bullish boosters, has joined a growing list of stock watchers who are downgrading their outlook for the shares of the beleaguered online retailer.

Blodget gained a cult following among high-risk investors in 1998, when he predicted that Amazon's stock could reach $400 per share. But today he cut his short-term rating on Amazon from "buy" to "accumulate." He maintained his long-term rating as a "buy."

Amazon shares closed down $4.69, or 13 percent, at $31.38. At one point during the day, the shares dipped to $29.75, a new 52-week low that represents a 74 percent plunge since December.

Blodget said today that the largest online retailer will survive the shakeout that has thinned the ranks of e-tailers in the past three months. He is still predicting that Amazon will become profitable in the fourth quarter of 2001 and said he believes the stock will rise in this year's fourth quarter because of strong holiday sales.

But Blodget said that aggressive, short-term investors should no longer look to Amazon for quick cash from stock pops. Although it's an Internet company that has traditionally attracted high-risk investors, Amazon is in a slow-growth period more characteristic of old-economy retailers.

"The revenue growth wasn't quite what we thought it would be, and this transition from the revenue growth story to an earnings growth story is going to take longer than we expected," Blodget said in an interview with CNET News.com. "Amazon is in an awkward position between aggressive investors and long-term investors."

Blodget is one of several analysts who downgraded their ratings of Amazon today, one day after the company reported second-quarter revenue of $577.9 million--a 1 percent gain from the first quarter and about $7 million less than Wall Street expected.

The essentially flat quarter-to-quarter revenues indicated to some analysts that the company's popularity and sales growth may be nearing its peak.

Steve Weinstein, a Pacific Crest analyst, downgraded the company to "market perform" from "strong buy." Scott Reamer at SG Cowen cut Amazon to "buy" from "strong buy." LaurenCooks Levitan at Robertson Stephens cut Amazon to "long-term attractive" from "buy."

Holly L. Guthrie and Tomas Isakowitz at Janney Montgomery Scott downgraded Amazon to "hold," with a 12-month target price of $41 per share.

Mark Rowen at Prudential Securities cut Amazon to "hold" from "strong buy," with a 12-month target price of $40 per share.

Today's downgrades are the latest example of Wall Street's aversion toward profitless "new economy" stocks--and toward Amazon in particular. Just last year, Time magazine named Amazon chief executive Jeff Bezos its "Person of the Year," and many e-commerce stocks were trading at record highs.

But this year has read more like a horror novel than a glowing magazine profile for Bezos and his Seattle-based company.

With today's decline, Amazon shares have plunged nearly 73 percent since reaching a 12-month high of $113 on Dec. 9. During that period, the company's market capitalization has also sunk, from $60 billion to $11.9 billion.

The downgrades cap a painful month for the company.

Amazon announced Tuesday that Joseph Galli, president and chief operating officer, resigned to become the CEO of VerticalNet. Several analysts saw the departure as potentially troublesome for Amazon.

Take a look behind the earnings numbers this week on CNET News.com TV Saturday and Sunday, July 29 and July 30, 4 to 5 p.m. ET on CNBC

Chief financial officer Warren Jenson also announced this week that Amazon expects to renegotiate several of its deals with its commerce network partners, which will lead to flat, lower-than-expected revenues from the network in upcoming quarters.

Yesterday, the company suffered a 40-minute site outage it blamed on "network problems."

The company reported a sliver of positive news with its earnings report yesterday: Despite the widening loss compared with last year, its loss narrowed compared with the first quarter. And its gross profit margins--the difference between what a company charges customers for its goods and services and what those goods and services cost the company--improved from 22 percent in the first quarter to 23.5 percent in the latest quarter.

But that hasn?t buoyed the steadily slumping stock price, a slide that began last month amid questions about the company's $2 billion debt and concerns about its quarterly results.

Convertible debt analyst Ravi Suria of Lehman Brothers issued a report in late June, warning that Amazon's credit is "extremely weak and deteriorating."

At the same time, Morgan Stanley's Mary Meeker said she saw "no upside" and "modest downside" to her second- and third-quarter revenue estimates for Amazon and sees no catalysts for the stock "until they make or break the December quarter."

Although many analysts maintained that Amazon is a sound investment over the long term, others aren?t so certain.

"Amazon is an anachronism," Steve Jurvetson, managing director of Draper Fisher Jurvetson, wrote in an online editorial that blasts Amazon as an intermediary between physical and online retailing. "The Internet empowers consumers over retailers for the first time. E-retailers will no longer be the force--or the bottleneck--that they are in the physical world. This implies a dramatic shift of who has power in the e-commerce domain."