Amazon Takes Another Slap as Prudential Cries Sell

In another blow to Internet retailer Amazon.com (AMZN Quote), Prudential Securities Thursday downgraded the stock to sell.

The firm, which has done banking for Amazon, attributed the rare sell rating to slowing revenue growth in Amazon's core books and video business and uncertainty about how much the stock is really worth.

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"The exact value of Amazon.com is impossible to determine at this juncture," wrote analyst Mark Rowen, who also slashed his price target to $9 from $20. Shares were off slightly in recent trading, down 31 cents, or 2%, at $14.13. Amazon declined to comment on the report.

Rowen cited anemic growth in the company's core U.S. books and video business, which grew only 11% in the fourth quarter from a year ago, as the key reason for the downgrade. Also, Seattle-based Amazon's international businesses and its so-called early-stage businesses are growing fast but losing money, he wrote.

The sell rating further underscores investors' schizophrenic view of the company, whose ratings on Wall Street range the spectrum from buy to sell. The Prudential report taps into a rich vein of criticism of Amazon, which some observers say hasn't provided a complete picture of its financial health. For example, the company didn't break down financial data for its nonmedia businesses in its latest earnings release, leaving analysts to wonder how much the company's co-branded site with Toys R Us (TOY Quote) contributed to growth. Indeed, Rowen's report complains that it is difficult to gauge the performance of the company's electronics and toy businesses.

Rowen's report comes less than a month after the company, for the first time, gave investors what they had long craved: a date for profitability. But the news was clouded by the fact the company slashed revenue estimates for 2001 and announced it was laying off about 1,300 employees, or 15% of its workforce.

Meanwhile, a debate rages among analysts about the health of the company's balance sheet. While many agree with the company's view that the $1.1 billion in cash and marketable securities it had at the end of the fourth quarter is sufficient to reach profitability without tapping the capital markets, a recent report by a Lehman Brothers analyst predicted the company will face a liquidity crisis in the second half of the year.

Though Amazon's share price is more than 80% off its all-time high, the stock is still pricey by various measures. Amazon's market capitalization of $5 billion is nearly triple that of the nation's largest bookseller, Barnes & Noble (BKS Quote), even though Barnes & Noble's sales were almost half again as much as Amazon's. And Amazon trades at close to two times projected 2001 sales, putting it at a premium to virtually all of the nation's brick-and-mortar retailers.