Amazon Leaps $46 on Report, but Analyst's Optimism Is Qualified

L.A. Times Archives

Dec. 17, 1998 12 AM PT

From Times Wire Services

Amazon.com Inc.’s stock soared 19% after an analyst set a $400 price target for shares of the fast-growing but money-losing Internet retailer.

In a later “clarification” of his views, Henry Blodget of CIBC Oppenheimer & Co. stressed that he was looking at potential gains over a one-year time horizon, not a near-term explosion in the price of the volatile stock.

Amazon.com rose nearly $60 in heavy trading on Nasdaq, hitting a record $301.75 before settling back to close at $289, up $46.25 for the day.

“The insanity goes on and on,” said David Simons, managing director of New York-based Digital Video Investments, an institutional research company.

TheStreet.com’s Internet index, which tracks 20 companies, including Amazon.com and Yahoo Inc., has more than doubled in a year. Companies such as K-Tel International Inc., known for its late-night TV ads pitching the Veg-O-Matic and “Hooked on Classics,” have seen their stocks rocket after announcing they’re opening or even altering Web sites.

In his original report issued early in the day, Blodget kept his “buy” rating on the stock for “strong-stomached, long-term investors,” acknowledging that the shares are “scary to buy” and “incredibly expensive” based on expected results in the short run.

Blodget’s enthusiasm was not shared by all. Merrill Lynch & Co. analyst Jonathan Cohen reiterated his near-term “reduce” rating, though his long-term rating on the stock remains “neutral.”

Seattle-based Amazon.com, which also sells music, videos and other items online, could have sales of $10 billion and earnings of $10 a share within five years, Blodget projected.

He warned, however, that expected strong holiday sales could be followed by a slower first quarter next year. That might disappoint investors and trigger a sell-off in the stock, he noted in his second report.

“We would not, therefore, go hog-wild with the stock at current levels in the expectation that it will go straight up from here,” Blodget wrote.

Another One for the Books

Not to be outdone, Books-a-Million Inc. said Wednesday it will buy a Web site developer to better compete with Amazon.com, and the announcement sent its shares up 80% as small investors seeking the next big Internet play went into a frenzy.

The No. 3 bookseller’s shares zoomed $8.06 to close at $18.13 on Nasdaq after hitting $22.50 earlier. It was the most active U.S. stock, with trading of 36.9 million shares--more than twice the number outstanding.

The company, which owns 172 Books-a-Million and Bookland stores in 17 states, said it will buy closely held NetCentral Inc. for an undisclosed price. Although that set off the surge, analysts said it was mostly driven by interest in rival Amazon.com, which surged Wednesday.

“This is all Internet hype--they are buying a company with fewer than 10 employees,” said Amy Ryan, an analyst with Prudential Securities Inc. in New York.

NetCentral designed the Birmingham, Ala.-based company’s new Web site, whose debut set off a stock spike last month. The shares traded as low as $2.69 and as high as $47 in November.

Claimsnet Offering Fizzles

Apparently, not everything with a “.com” after it can sell.

Claimsnet.com Inc., a Dallas-based maker of software for handling health-insurance claims over the Internet, said Wednesday that underwriter Strasbourger Pearson Tulcin Wolff Inc. failed to complete a planned $11.2-million initial stock offering Friday, when trading of the stock on Nasdaq was abruptly halted two hours after it was released.

“The deal was canceled,” confirmed Michael J. Schumacher, chief executive of Strasbourger Pearson in New York, which handled the sale of 1.6 million shares, but he declined to say why.

Claimsnet.com’s stock fell to $6 on Friday, down $1 from the initial price.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Book Value

Though it sells 79 books a minute and its stock is up more than eightfold this year, Amazon.com has yet to post a profit. The company at a glance:

* Ticker symbol:: AMZN

* Market capitalization: $15.2 billion

* Year-to-date total return: +859.3%

* ’98 earnings-per-share estimate: -$1.66

* ’99 earnings-per-share estimate: -$1.79

Sales in millions

1998*: $357.1 million

Stock Price