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Amazon.com shares slide after COO bolts for VerticalNet''s top post

3 min read

Amazon.com shares tumbled 4 1/8, or 11 percent, to 34 5/8 Tuesday after it confirmed that President and COO Joe Galli has resigned from the online retailer to join VerticalNet as its new chief executive officer.

In a prepared release, Amazon.com said Galli was leaving for leaving "personal reasons" but minutes later VerticalNet (Nasdaq: VERT) issued a press release welcoming him on board as the company's new CEO.

VerticalNet shares moved up 1 5/8 to 58 3/8.

"We'd like to thank Joe for his hard work and accomplishments over the last year," said Amazon.com CEO Jeff Bezos in a prepared release. "I believe he is making the right decision for him and his family circumstances. We all wish him the very best.''

VerticalNet CEO Mark Walsh said he will shift to the chairman's post to make room for Galli.

"Great companies know when to add power, and as President and CEO, Joe is capable of capitalizing on VerticalNet's tremendous momentum while managing our fast-paced growth," Walsh said in a prepared release.

Dan Ries, an analyst at C.E. Unterberg Towbin, said that while it's too early to determine whether Galli bolted for a more lucrative contract or if he was forced out at Amazon.com, it doesn't bode well for a company that's struggling to maintain credibility on Wall Street.

"This is not good in general for Amazon," Ries said. "It all depends on what his contract at VerticalNet looks like. If VerticalNet made him a much richer man than he already is, that's one thing. If it's a similar deal, that's an entirely different story.

Amazon.com has come under heavy criticism from Wall Street in recent quarters for continuing to post nine-digit quarterly losses while spending furiously to expand its online customer base.

"Galli's departure certainly isn't a positive, especially because execution is so crucial for Amazon.com at this time," Ries said. "At the very least, it's disruptive to the company's operations."

Galli was with Amazon for the last 13 months and, prior to that, was with Black & Decker for 19 years.

Both companies will report their second-quarter results after the bell Wednesday.

First Call Corp. consensus predicts Amazon.com (Nasdaq: AMZN) will lose 35 cents a share in the quarter.

Last quarter, Amazon.com slipped past analysts' estimates, losing $122 million, or 35 cents a share, on sales of $574 million.

VerticalNet soared past Street estimates in its first quarter, posting a loss of $12.2 million, or 16 cents a share, on sales of $27.5 million.

First Call Corp. consensus expects VerticalNet to lose 30 cents a share in the second quarter.

The recent performance of both companies' stocks suggest that Galli might be making a wise career choice.

Amazon.com shares fell to a 52-week low of 32 7/16 earlier this month after peaking at 113 in December. Twenty-six of the 33 analysts following the stock rate it either a "buy" or "strong buy."

VerticalNet shares hit a 52-week high of 148 3/4 in March before splitting 2-for-1 in April. The stock bottomed out at 13 3/4 in August. Twenty-three of the 24 analysts following the stock rate maintain either a "buy" or "strong buy" recommendation.