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.


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