Amazon.com Shares Plummet 19%

Shares in online mega-store Amazon.com Inc. suffered their worst-ever drubbing Friday, falling 19% after a brokerage firm warned investors that the company’s financial outlook may be weakening.

The sell-off dragged down the shares of other online merchants, with EBay Inc. and Priceline.com Inc. losing more than 7% each.

In a report issued Friday, Lehman Bros. credit analysts Ravi Suria and Stan Oh advised investors to avoid Amazon stock and notes.

“The combination of negative cash flow, poor working capital management and high debt load . . . will put [Amazon] under extremely high risk,” the pair wrote.

Amazon spokesman Bill Curry called the report “pure hogwash” and noted that the company does not give analysts intra-quarter guidance on its finances. “We are nowhere near running out of cash,” he said.

At its current rate of consumption--$81 million per quarter--Amazon has enough cash to last 35.3 months, Barron’s magazine reported Monday.

To continue to grow, Curry acknowledged, the Seattle-based Amazon must generate enough cash flow or raise more capital. Since its inception in 1994, Amazon has lost $1.2 billion. The company said in April that it would have positive cash flow over the next three quarters combined and enough to cover planned capital expenditures.

Still, Friday’s report spooked investors. “It surprised me,” said David Cooperstein, director of online retailing for Forrester Research in Cambridge, Mass. “Maybe that’s just the psychology of the market right now.”

Fueling the concern were remarks by noted Internet analyst Mary Meeker of Morgan Stanley Dean Witter, who questioned whether Amazon would meet sales projections for the next two quarters. Meeker told the company’s brokers Friday that Amazon is dependent on the holiday quarter, and she expects strong growth toward the end of the year.

Amazon shares fell $8.13, to $33.88, in Nasdaq trading, down from Thursday’s close of $42 and the lowest close since December 1998. More than 51.8 million shares traded hands--more than eight times the company’s daily average--making Amazon the most active U.S. stock. Amazon shares hit a 52-week high of $113 last December.

Friday’s plunge affected other e-commerce stocks.

Online auction site EBay fell $4.31 in Nasdaq trading, to $53.88, or about 60% off its $127.50 high in March. Travel bidding site Priceline.com fell $3.50 to $41.81, from a high a year ago of $119.

America Online Inc. dropped $3.38 to $53.13, and Yahoo Inc. fell $6.38 to $125.31.

“When Amazon.com goes down, everyone else goes down,” said David Kugler, president of top-rated mutual fund Monument Funds Group, which had 20,000 Amazon.com shares and 31,750 EBay shares in March.

The Interactive Week index of 50 Net-related stocks, including Amazon.com, fell 4.1% Friday.

The doubters’ pullout from tech stocks dragged the Nasdaq index down for a second day. Nasdaq lost 91.50 points, or 2.3%, to 3,845.34, down slightly for the week. Internet stocks plunged with the tech sector overall beginning in early March. Though many other tech subgroups, including biotech and semiconductors, have rebounded in recent weeks, the Net sector has lagged.

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Bloomberg News was used in compiling this report.

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Increasing Disappointment.com

Amazon.com’s shares tumbled on Friday, reaching their lowest level since December 1998. Even so, investors who got into the stock (ticker symbol: AMZN) at its initial public offering price of $1.50 in May 1997 (that’s adjusted for subsequent stock splits) still have a 21-fold profit. Monthly closes and latest on Nasdaq:

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Friday: $33.88, down $8.13

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Source: Bloomberg News