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Amazon.com's Late-Summer Bummer

Perhaps more than any other publicly traded Internet company, Amazon.com represents to investors the vast potential rewards and risks of the cyber-economy.

When the market is bullish on the Internet as a catalyst for transforming the economy and creating wealth, shares of the online retailer's stock soar. This happened in April, when AMZN became one of a small handful of Internet companies to close above $200 per share.

But when a new wave of jitters over Internet valuations or possible interest rate hikes sweeps through the herd, AMZN tends to get trampled in the selloff stampede.

Such has been the case during the market's downturn in recent weeks. AMZN shares closed Monday at $94, down 6% from Friday and 32.6% from July 15. The online retailer's stock is trading at less than half the yearly high of $221.25 it reached in late April.

The worst, however, may be yet to come. Amazon.com was forced on Monday to make an interest payment on $1.25 billion in debt that the company sold in February. Further, as long as AMZN shares trade below the conversion level that would allow the company to convert the notes for stock, it must continue to pay interest on the debt. So what's the conversion level? Try $234.08, a price Amazon.com would have to reach at least 20 out of 30 consecutive trading days to convert debt to stock.

Some analysts have dismissed the importance of the debt payment, noting correctly that it won't impact earnings expectations in '99. However, coming so soon after a quarterly report that showed dramatically widening losses, the psychological impact on profit-anxious investors could accelerate Amazon.com's already precipitous plunge.

Like all other e-tailers, Amazon.com is looking forward to the fall, when holiday shopping begins in earnest. Last year was a huge one for e-tailers, and analysts expect an even better season in '99.

Until then, there's not much to support a turnaround -- or even a holding operation -- for Amazon.com shares. August looms as a long month for the e-tail king and its investors.

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