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The BBC's Rory Cellan-Jones
"It is the mismatch between sales and profits that is worrying investors"
 real 28k

Steve Fraser, Chairman, Amazon.com
"Misinformation was distributed on Wall Street"
 real 28k

Saturday, 24 June, 2000, 01:19 GMT 02:19 UK
Amazon tumbles to year-low

The web's most famous retailer, Amazon.com, saw its share price tumble 20% on Friday to an 18 month low of $33 7/8. Six months ago the stock sold for $113.

Then, Amazon had a market value of nearly $40bn. Now it is worth around $10bn.


We believe that the combination of negative cash flow, poor working capital management, and high debt load in a hyper-competitive environment will put the company under extremely high risk.

Ravi Suria, Lehman Brothers

However, the company has dismissed as "hogwash" suggestions that it is in danger of running out of cash.

The stock lost more than $8 after one of Wall Street's most influential internet stock analysts warned that there was "no upside" to Amazon's revenue estimates. Nearly one in six of every share of Amazon stock was traded on Friday, ten times the usual volume.

Mary Meeker, analyst with investment bank Morgan Stanley, said she would not make any changes to her forecasts of the firm's operating losses "as the company continues to focus on operating income".

In other words, Amazon keeps pursuing its strategy of aggressive growth, but at the price of piling up the losses.

Ms Meeker's pronouncements drove down not only Amazon's share price, but depressed the whole internet sector, with the share prices of firms like Yahoo, eBay and even America Online suffering sharp losses in Friday trading.

Shares in America Online, which is merging with Time Warner, dropped 5.5%, while eBay was down 7.4% and Yahoo off 5%.

Wall Street's worry about Amazon.com "doesn't bode well for the rest of the sector," said Kristine Koerber, an analyst with W.R. Hambrecht.

No profits

During the past three years, Amazon has received about $2.8bn in funding, while revenues - not even profits - reached only $2.9bn.

Time magazine cover of Jeff Bezos
Amazon founder Jeff Bezos was Time Magazine's "Person of the year 1999"
This was "a whopping $0.95 for every dollar of merchandise sold", said Ravi Suria and Stan Oh, analysts with investment bank Lehman Brothers.

There have been suggestions that Amazon could run out of cash as early as April next year, unless extra funds are forthcoming or profits suddenly come in.

The Lehman analysts warn that "the combination of negative cash flow, poor working capital management and high debt load ... will put the company under extremely high risk".

"From a bond perspective, we find the credit extremely weak and deteriorating," Lehman said, warning that Amazon.com risks running out of cash by the middle of 2001.

"Unadulterated hogwash"

This brought an indignant response from Amazon.com, which said it was "nowhere near running out of cash."

Spokesman Bill Curry called the comments "absolute, pure unadulterated hogwash," adding: "Anyone who understands the cash flow dynamics of this business knows this."

Mr Curry said the company ended the first quarter with more than $1bn in cash, and expected to become cash flow positive later this year.

He declined to speculate whether the company would need to raise additional cash before it became profitable.

There was some support for Amazon.com, with 15 analysts continuing to rate it as a "strong buy". Nine say it is a "buy", and another nine advise to "hold" the stock.

Retailing pioneer

Amazon is one of the pioneers of internet retailing, going online as long ago as 1995.

In February, the firm was forced to announce job cuts for the first time, sacking 2% of its total workforce of 7,500.

The company says that its US book business is profitable, although it is still spending to develop internet book sites in Europe and other retail services.

But analysts generally agree that the next Christmas selling period will be crucial in proving whether the company can deliver to investors.

In 1999, it lost $390m on revenues of $1.6bn.

It is expected to have revenues of around $3bn this year.

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