What Price Amazon? Pick One, Analysts Decide

SAN FRANCISCO -- Welcome to the battle of the rock 'em, sock 'em Amazon.com (AMZN) analysts.

Take a seat and watch CIBC Oppenheimer analyst Henry Blodget -- described by co-workers as tall, blond-haired and blue-eyed -- duke it out with Merrill Lynch analyst Jonathan Cohen -- described as short, bald and "bubbly." If that's not enough to tell them apart, Blodget is the one with bull horns strapped on.

Blodget stepped into the arena Wednesday with an eye-bulging price target of 400 for the giant Internet book retailer. Cohen responded Thursday by reiterating his reduce rating and stated his bearish 12-month price target of "under $50 a share." The stock would have to fall at least 83% from Wednesday's closing price of 289 to hit that mark by this time next year. Neither firm served as an underwriter for Amazon, whose shares closed off 4.2% Thursday at 276 3/4.

More than anything, the $350 discrepancy in price targets speaks to the impossibility of valuing the closely watched Internet stocks, a dilemma that now threatens to degrade the science of stock analysis to a form of entertainment. The analysts will appear on CNBC this afternoon to duke it out further.

Blodget's $400 price goal sent the stock soaring 19% to end at 289 after climbing as high as 301 3/4. Thursday morning, Cohen's conference call knocked it down to 260 9/16. It closed at 276 3/4, down more than 4%.

Blodget's report gushed with optimism that the promise of Internet riches could bring Amazon's market cap -- currently $15 billion -- even higher, citing strong revenue growth, better-than-expected third-quarter results and robust online buying since Thanksgiving.

Cohen's view is that the stock belongs in a tulip garden. The company's $15 billion market cap "strikes us as truly outrageous," Cohen said during a Merrill Lynch conference call Thursday morning. "It is probably the single most expensive piece of equity ever, not just for Internet stocks but for any stock in the history of modern equity markets."

Cohen doesn't doubt all of the positives pushing the company's revenue growth, like continued increase in Internet usage and the company's continued expansion into new areas such as music and video. "But I expect them to lose a lot of money in those businesses," says Cohen. "The premise is that they are a next-generation commerce platform, but we don't view them as a commerce platform, but as a book retailer that generates huge revenues at huge losses."

Cohen says Amazon has a good chance of topping revenue projections. The I/B/E/S consensus calls for 22% growth to $188.6 million this quarter, but the "whisper numbers" say $300 million. But he adds that revenue growth alone won't be enough to keep the stock rising. Blodget's report took a different view, pointing to third-quarter revenue that more than quadrupled in a year.

After the holiday hype subsides, Cohen says, "there will be a heightened level of focus on the cost structure." Sales and marketing expenses, product development costs and charges from recent acquisitions will generate some near-term concern. In the most recent quarter, sales and marketing expenses were 24% of revenue, and merger-related costs, 13%.

Blodget says he was being outspoken in issuing his bold target. "This is a hypocritical stock market," he told TSC. "Analysts rate the stock buy indefinitely and never put a price [target] on it. I wanted to put my money where my mouth is."

Joining the bears, Wheat First Union analyst Miles Russ also downgraded Amazon.com to hold from outperform Thursday morning.

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