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Amazon stock continues to soar

The online retailer's market cap briefly surpasses Texaco, Merrill Lynch, and Sprint as Internet fervor keeps its grip on Wall Street.

Amazon and its investors continue to think big: The online retailer's market capitalization today briefly surpassed Wall Street giants Texaco, Merrill Lynch, and Sprint.

Still, profits remain elusive, even as revenues climb.

For a time during the trading day, Amazon passed $30 billion in market value, up about $5 billion, after its stock surged on continued investor enthusiasm for anything Internet-related. The shares at their height touched a record high of 199.125. Later, the stock drifted back toward Earth, closing up 1.375 at 160.25. Its market cap settled at $25.37 billion, back below Texaco, at $29.73 billion; Merrill Lynch, at $27.5 billion; and Sprint, at $27.22 billion.

"Generally speaking, Amazon's valuations have not been that closely scrutinized. Most of the trading in the company is related to momentum in the business and sector as a whole," said Derek Brown, an analyst with Volpe Brown Whelan.

Other analysts are more direct. "People are convinced that these stocks will never, ever come down,'' said J.P. Turner & Co. analyst Rick Berry, who has a "sell'' rating on Amazon. "It's pretty much the theater of the absurd.''

Brown said that, even sans profits, Amazon's underlying fundamentals remain strong, adding: "There's nothing on the near horizon that Amazon will be displaced as the dominate force in e-commerce today."

Internet stocks this week were fueled by heady forecasts for online sales, which are expected to double to $68 billion next year, according to market researcher International Data Corporation.

Amazon stock has gained more than 75 percent in the new year after it said its fourth-quarter sales almost quadrupled to $250 million and it split its stock 3-for-1.

Stock splits are generally designed to make the shares more affordable to a larger number of investors, which in turn can have the outcome of eventually driving up the price again.

Brown said he's been surprised by how quickly Amazon's stock has climbed after its split.

Meanwhile, the company yesterday announced it will open its third and largest distribution facility this year to speed deliveries to Western states and keep up with rapidly rising sales.

The 323,000-square-foot center, described as a "highly mechanized'' will open in the first half of 1999.

Amazon's original 93,000-square-foot distribution center in Seattle is at full capacity, and last year the company added a 202,000-square-foot center in New Castle, Delaware, mainly to serve the Eastern United States.

"This facility will more than double their existing capacity," Brown said. "With that said, this is a strong indication that the company believes there is significant demand for their product."

Even with the jump in sales, the Seattle-based company said its fourth-quarter loss won't narrow because it sold more low- margin items such as music and videos. Indeed, the more Amazon sells, the more it loses. The company has said it isn't sure when it will turn a profit.

Brown, however, is satisfied with the company's performance with its music sales.

"They're knocking the cover off the ball with their music business," he said. "I think in the fourth quarter their music business did $30 million to $35 million, up from $14.4 million in the third quarter. They grew that segment more than 100 percent."

Competitors like CDnow are expected to generate $20 million in the fourth quarter, while N2K's Music Boulevard is anticipated to generate $15 million to $16 million in the quarter, Brown said.

"These companies have been in the music space longer, but in a short time Amazon has taken a sizable lead in the market," he said.

Bloomberg and Reuters contributed to this report