Forum Archive Index - August 2000

["Geoff Ewert" <gewert@wai.quik.co.nz>]

 

Interesting comparisons>  

     RAGING BULL'S CYBERSTOCK INVESTOR REPORT
"Your Weekly Internet Stock Newsletter"
August 4, 2000
By Chet Dembeck

"Now Read By Over 250,000 CyberInvestors Weekly"

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Polar opposites

Last week I was reminded of the classic fable, "The Emperor's New Clothes,"
about a monarch who was convinced -- and commanded everyone in his kingdom to
accept -- that he looked magnificent in supposedly invisible clothes.  His
subjects played along, until one day a mere peasant saw him walk out of the
palace naked and cried out, "The Emperor has no clothes!"

What brought this dusty yarn roaring back into my frontal lobe was Amazon.com's
(AMZN) CEO, Jeff Bezos, and his recent glib handling of both the company's
disappointing second quarter results and the sudden departure of its chief
operating officer, Joseph Galli, who split to become CEO of business-to-business
trading network VerticalNet (VERT) after only 13 months on the job.

The unflappable Bezos

Not only did Amazon report second quarter revenues of $578 million, short of its
own goal of $597 million, but it registered a net loss of 33 cents a share,
wider than last year's 26 cents a share.  Its poor showing prompted downgrades
from Lehman Brothers, Merrill Lynch, Robertson Stephens, SG Cowen, Prudential
Securities, Janney Montgomery Scott, Pacific Crest Securities, and Banc of
America.  Amazon stock has continued to limp lower, closing Thursday at 31 1/2,
fathoms below its 52-week high of 113.

Yet none of this bad news has seemed to affect Bezos.  Not unlike the fabled
emperor, Bezos appears unflappable, with his perpetual smile planted on his
face, saying that Amazon wouldn't miss a step as a result of Galli's unexpected
departure.  One has to wonder why Bezos even bothered to woo the former Black
&Decker (BDK) executive with a $2.9 million signing bonus.

The only time Bezos has showed any emotion that I can recall was in June, when
Lehman Brothers characterized Amazon's corporate bonds as "extremely weak and
deteriorating."  Bezos blasted the report as being erroneous during a keynote
address he delivered at PC Expo, saying the e-tailer had "a billion dollars in
cash" in its corporate coffers.

It appears that the eternal optimist continues to see half-filled glasses of
nectar in his company's latest financials.  "While we continue to see
improvements in all of our businesses, we are especially pleased with the
profitability in our U.S. books, music, and video group and the unusual growth
in our electronics store," Bezos said in a statement.  "For the company as a
whole, we're well on our way to achieving our 2000 objectives."

Call me a peasant

To that bunch of corporate fluff and doublespeak, I have but one worthy
response: "The Emperor has no clothes!"

I'm neither an accountant nor a Wall Street analyst, but it seems like nothing
more than creative sleight-of-hand when a company isolates only a portion of its
business and points out its profitability, when the reality is in the big
picture, it lost millions.  Using that same reasoning, any company that seeks
protection from the U.S. Bankruptcy Court shouldn't be allowed to file Chapter
11, since I'm sure there's some slice of their product line that's turned a
profit.

It's the model, stupid

Moreover, I'm not convinced that Amazon's model has the potential to ever be
profitable.  A recent study by University of Texas study found the New Economy
generated nearly $524 billion in 1999.  E-commerce was the fastest-growing
segment, with revenues increasing by 72% to $171.4 billion.  Yet after being in
business for over three years, Amazon's bottom line still declines to
participate in this growth.

I see Amazon.com as nothing but a glorified mail order house, and in fact the
only possible salvation for this company is to team up with an established
brick-and-mortar retailer such as Wal-mart (WMT), or even a Circuit City (CC).
If that happened, Amazon stock would be worth serious consideration, because
then it would have the infrastructure and the offline customer base it so
desperately needs to be profitable.  But as it stands today, even near its
52-week low, AMZN is still overvalued to me.

EBay's the real thing

By contrast, I think eBay (EBAY) exemplifies a successful dot-com model and is
definitely worth a look.  In fact, at Thursday's closing price of 50, far off
its 52-week high of 127 1/2, EBAY could be quite a bargain as the online
auctioneer continues to roll on.

EBay's second quarter income before charges came in at $13.2 million, or 5 cents
a diluted share, up from $5.1 million, or 2 cents per share a year ago.
Additionally, the online auctioneer's revenue skyrocketed 130% to $97.4 million.

But more importantly, its model continues to flourish.  More than $1.3 billion
in goods were traded over eBay's Web site during the quarter, or a 108% increase
over its first quarter.  Also, its powerful branding grew its registered users
by 183% to 15.8 million by the end of the second quarter.

The beauty of eBay's model -- and why I believe it continues to grow -- is that
it has created a worldwide buying and selling network where millions of people
are making extra money by buying or trading via the Internet.  I know folks who
live in metropolitan areas that scour local flea markets for such items as
Barbie dolls, baseball cards, or old videos on a Saturday, only to sell them for
a substantial profit on Sunday via eBay.  In some cases, whole families are
participating in the new cottage industry made possible by the innovative
company.  Remember one simple axiom: whenever a company creates a model where
all parties benefit from a series of transactions, it has hit a home run.

Also, by being the first company to bridge the distance between millions of
buyers and sellers via the Internet, eBay has become synonymous with online
auctions, developing such a loyal following that many challengers have been
unable to penetrate its market.

Quick to retreat

Finally, so unlike Amazon.com, when eBay errs it is quick to retreat.  For
example, after paying $260 million for brick-and-mortar auction house
Butterfield & Butterfield 15 months ago, eBay recently decided to lay off 5% of
B&B's staff and move its Chicago, Ill.-based operation online when it saw things
weren't turning out as planned.

This ability to be agile and still continue to build upon a simple yet solid
model should make eBay the new bellwether of e-commerce, draped in the
resplendent, royal, purple robes of profits.  All hail the new emperor!


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***********************Advertisement************************

It pays to be smart, and you can be a smarter investor by visiting
SmartMoney.com.  Find out what the market is doing, how to pick through the
Internet minefield, and why some recent IPO's have been more like uh-oh's.
Don't waste time looking for the right investment tools.  They're at
www.SmartMoney.com.

http://ads20.focalink.com/SmartBanner/page?16783.15

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To subscribe or unsubscribe to this report, please point your browser to:
http://www.ragingbull.com/articles/cyberstock/

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