RealTime IT News

Mary, Mary, Quite Contrary

Amazon.com's share price got hit with the ugly stick last week by an angry mob of jittery investors already smarting from a prolonged market correction in tech stocks. Ravi Suria, a Lehman Brothers convertible debt analyst took a peek under the e-tailing giant's hood and shed some light on the company's "extremely weak and deteriorating" credit situation. A pair of Web analysts looking to get their names in the paper and hedge their bets over the company's slipping sales numbers also piled on the bandwagon.

On nearly ten times its average daily volume, Amazon shed nearly 20% of its market cap. Morgan Stanley's Mary Meeker all but said the e-tailer will miss next quarter's revenue estimates with Merrill Lynch's Henry Blodget echoing that sentiment. Investors shouldn't look for many analysts to back the company again until the holiday seasonal sales boom in December.

Call it a blue chip, a graybeard - whatever. Amazon is in rare company with only a smattering of Internets that have long acted as a benchmark for the broader online sector. Where it goes, so goes the entire basket of Net stocks. And this instance was no different. Investors wasted no time heading for the hills, looking to sell before the bell and digest the news over the weekend.

What makes this latest haircut so unsettling is that Amazon has withstood its harshest critics for years now without so much as a dent. But Friday's sell-off showed real signs of a train-wreck with permanent damage. It's looking like greed has quietly slipped out the back way, and fear is knocking loudly at the front door.

With Amazon starting to resemble a brick-and-mortar retailer with shrinking margins, seasonal sales, and inventory headaches, investors are wondering aloud whether they're invested in a sexy Net stock or a plain vanilla offline retailer. Last week's comments simply spooked weak hands already in search of an excuse to sell.

The queen of e-tailing also has a bevy of big-name start-ups suckling at its teats. While the investments represent a potentially lucrative portfolio of liquidity events for Amazon, should the synergy companies successfully tap the new issues market, things haven't been going as planned. Amazon owns a 31% interest in last-miler Kozmo.com, who postponed IPO plans just last week in favor of better market conditions. Publicly-traded HomeGrocer.com , Pets.com , drugstore.com , and NextCard are all in the same sinking boat.

There's a dangerous level of fear in this market, and that spells serious trouble for an industry fueled largely on speculation. With few traditional metrics to go on, most investors time this volatile sector based entirely on investor psychology, which is at an all-time fragile state at the moment. Things aren't likely to get much better until a healthy dose of greed bites investors.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

Want my daily missives delivered with your morning toast and coffee? Sign up for my DealTracker newsletter.