Is the hype surrounding Amazon.com finally about to reach its natural conclusion? Shares in the loss making on-line book seller fell 5% on Friday as demand for the stock eased, but the world’s most over-valued bookstore still closed up a net 130% in the last 30 days, and up over ten times for the year at $94 a share. Mind you, Dain Rauscher Wessels analyst Mitch Bartlett has just cut his firm’s rating on the stock from buy to neutral stating, at today’s share price, even after factoring in the powerful attributes of the business model, the yearly sales growth necessary to achieve an investment return over a three-to-five- year period would be, we believe, unachievable. Try telling us something we didn’t already know Mitch. Because rational analysis has nothing whatsoever to do with a company valuation of $4.5bn from loss-making revenues of $150m. And perhaps the wake up call will come when Amazon’s revenue growth suddenly tails off because its internal controls are on the verge of collapsing, leaving the firm unable to deal with increasing volumes of business. A trap that many companies fall into when forced to grow faster than is good for them. In its June S4 filing with the SEC (a registration statement for the issuance of $530m of 10% Senior Discount Notes) Amazon noted that its staff numbers have grown from 158 employees as of December 31, 1996 to 796 employees as of March 31, 1998. The filing goes on to point out that, to manage the expected growth of its operations and personnel, the Company will be required to improve existing and implement new transaction- processing, operational and financial systems, procedures and controls. But it takes more than a new ERP package from Baan or its competitors to cope with the kind of transactional stress that Amazon is up against. It takes well-trained, business literate individuals who understand their company, and who can set up a system of operational checks and balances commensurate with the size and nature of their business. Sounds easy, but it isn’t. And many a public company, growing at a tenth of the rate of Amazon, has been threatened with a black mark on their year- end report to shareholders for precisely this reason. Which might have something to do with the fact that a very large proportion of Amazon’s publicly-traded shares have been sold short in recent days. The market’s bookies are betting on a fall.
