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Analyst Watch: As Amazon&#039s world turns

The worm has turned -- again -- for Amazon.com in the eyes of most Internet analysts. After first lauding and then panning the stock, analysts rolled out another round of upgrades for the online retailer after it missed fourth-quarter estimates.

These latest plaudits come exactly one quarter after many of these same analysts downgraded or at least tempered their enthusiasm for the stock after it beat the consensus estimate in its third quarter.

Call it "Bizarro" Wall Street.

Apparently the pundits were swayed by CEO Jeff Bezos' rather vague comments regarding profitability sometime down the line. In reality, everyone including Bezos knows Amazon.com's at least two calendar years away from turning a profit.

But the fact that Bezos alluded to profitability during a conference call, combined with the company's strong top-line growth, was enough for these guys to get back on the bandwagon.

Here we go again

Many analysts were enthused by the prospects of Amazon.com's U.S. books business reaching profitability sometime this year.

Banc of America analyst Tom Courtney raised his rating to a "strong buy" from a "buy" after cutting the stock from that same rating three months ago.

Courtney bumped his 12-month price target to $130 a share, saying Amazon.com "is the one stock that investors should own in this group, in our opinion."

Robertson Stephens analyst Lauren Cooks Levitan reiterated her "buy" rating on the stock.

"We believe that as the company provides us with more granular data in the future, we should gain better visibility on Amazon's path to profitability," she said in a research note. "As a result of Amazon's strong fourth quarter business momentum, we are raising our revenue estimates substantially. We continue to recommend purchase of Amazon, and view the company as a core Internet holding."

CS First Boston analyst Lise Buyer, who was among the few analysts who didn't cut the stock or water down estimates after the third quarter, reiterated her "strong buy" rating, claiming the fourth quarter loss "represents the peak of negative operating margins, reaching single digits by year-end 2000."

Several other brokerage firm issued similar ratings and research notes, resulting in a 16 percent jump in the stock despite the $185 million loss it absorbed this quarter.

CIBC World Markets raised the stock to a "buy" from a "hold" after doing just the opposite three months ago. It also raised its target price to $100 a share.

However, PaineWebber analyst Sara Farley dared to be different.

Farley said it was difficult to get a clear picture of how the company was functioning on an operating level because the company offered "limited information."

She reiterated her comparative timid "neutral" rating and maintained her 12-month price target of $74 a share.

Did Amazon.com really need a "second" chance?

Fundamentally, Amazon.com is doing nothing different now than it did nine months or six months or even three months ago. It's burning through cash now to become the undisputed online shopping leader of tomorrow.

This didn't bother analysts much until Bezos and company said it would accelerate spending in the fourth quarter to ensure a first-class shopping experience for customers through the Christmas season.

And it paid off.

The $676 million in sales represented a 167 percent improvement from the year-ago quarter when it lost $22 million, or 17 cents a share, on sales of $253 million.

More impressive, its cumulative customer accounts grew by 3.8 million to more than 16.9 million. Repeat customers accounted for 73 percent of all orders in the quarter.

In December, the site's reached climbed to 25.6 percent and unique visitors jumped to 15.9 million, according to Media Metrix.

Company officials said it was able to ship 99 percent of holiday orders, peaking with more than $16 million in shipments in a single day. Sales per customer who purchased in 1999 were $116, up from $106 for 1998.

Basically, Amazon.com has only delivered exactly what it said it would.

It's already showing signs of maturity after laying off 150 employees last week. That's something that just never happens at a leading Internet firm.

That must have been hard for Bezos to do, but maybe that's what it took to convince investors that his company was determined to be more than a curious novelty.

As its electronics, toys and auctions sales improve along with the books and music, Amazon.com will cement itself as the Wal-Mart on the Internet, sans the stigma.

Of course, that could be a bad thing for shareholders. Just look at what happened to AOL after it bought Time Warner.

Apparently, there's some mystical, nebulous amount of money these Internet companies are allowed to lose in the process of building their business that is actually applauded by these analysts. Go a few bucks over this mysterious level and you become too risky.

Once you reach profitability, analysts love you. But if you're an Internet company that completes the largest merger in the history of the world, your tenure as a "top pick," a must hold, comes to an end.

Damned if they do. Damned if they don't.

Thankfully, Amazon.com and AOL don't believe their own clippings.