Analysts cautious on Amazon, bullish on AOL

The morning after Amazon.com Inc. (Nasdaq: AMZN) and America Online Inc. (NYSE: AOL) revealed their quarterly earnings Thursday night, analysts were giving AOL a thumbs up, and Amazon an thumbs down.

Shares of Amazon took a downward turn, falling 11 percent, down 13 3/4 to 111 11/16 in Thursday morning trading.

News that Amazon hit estimates, but will continue to spend heavily to expand tempered the typical analyst cheering for Amazon.

"This was by far the slowest growth in the company's history, and should send any remaining momentum investors leaping out of the stock," said Henry Blodget in his report for Merrill Lynch. Blodget's revenue estimates for 1999 were raised from $1.38 billion to $1.45 billion and the 2000 estimate was upped from $2.1 billion to $2.3 billion. Merrill Lynch will also trim 1999 earnings from a loss of $1.74 to $2.00 a share, and maintaining 2000 estimates.

Bear Stearns said it will cut Amazon.com to "attractive" from "buy," since "the accelerated expansion of distribution center capability will be an enormous task, making near term execution less visible," according to a report by Scott Ehrens.

Bear Stearns is maintaining revenue estimates for 1999 and 2000, but increasing operating expenses and net expense estimates, bringing expected loss to $1.82, up from $1.71 for 1999, and $1.32 from 1.14 for the year 2000.

Morgan Stanley also announced it is increasing its prediction for Amazon.com's loss for the fiscal year to $1.82 a share from the previous $1.68 a share loss.

Analysts were more bullish on AOL Morgan Stanley's Mary Meeker upped fiscal 2001 earnings from 80 to 90 cents a share.

But shares in AOL fell 3 percent, down 3 7/16 to 111 5/8. Though earnings were above official estimates, the small surprise wasn't enough to satisfy investors.

James Preissler of PaineWebber announced he will maintain a "buy" rating on AOL, with a 12-month price target of $215, to remain on the conservative side, though the sum of AOL's parts could give it a potential worth of $224 per share.

Preissler also advised investors to focus heavily on the subscriber number, which came in at the lower end of PaineWebber's expectation, at 755,000 for the quarter, or 8,400 new subscribers per day. But, because AOL beat the estimated subscription revenue number by about $13 million, and also showed better than expected performance in advertising/commerce and in the Netscape Enterprise Solutions business, Preissler is upping estimated revenues for fiscal year 2000 to $6.37 billion from $6.17 billion, or a raise to 59 from 55 cents a share.

Merrill Lynch analyst Henry Blodget also announced a raise in estimates for AOL, and maintained a "buy" rating on the stock. His year 2000 revenue estimates were also raised by $340 million from $6.2 billion to $6.5 billion. Earnings estimates were upped from 53 cents a share to 60 cents a share.

"AOL logged a solid FQ4, easily exceeding consensus EPS targets as a result of impressive operating leverage. Advertising and commerce revenue met expectations and the other key metrics we look at-gross margin, operating margin, marketing spending and network efficiency-were better than expected," Blodget said in the report.