So what was that about

Amazon

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facing a cash crunch?

For much of the year, a

lively debate has raged on Wall Street about whether the Internet retailer would have enough cash on hand to pay its bills as it drives toward profitability. But so far, there has been little evidence that Amazon's suppliers have the company in anything approaching a vise grip. Instead, a slew of analysts now are chirping that the company is likely to top both revenue and earnings estimates when it reports its second-quarter performance after the close of trading Monday.

According to market research firm Thomson Financial/First Call, analysts expect the company to lose 22 cents a share in the second quarter, narrower than the 33 cents a share it lost in the same period last year. (Earnings figures are on a pro forma basis, which excludes many noncash charges.) Revenue is expected to jump to $678 million, $100 million more than the company generated last year.

Hot, Hot, Hot
Amazon smoking through July

Those are the consensus estimates. But things could very well turn out better. A growing chorus of analysts now expect the company to report revenue above $700 million, significantly above consensus and slightly higher than the company's previous guidance, which called for revenue of between $650 million and $700 million.

Meanwhile, on the earnings side, the company could post a 10% narrower loss than expected, says U.S. Bancorp Piper Jaffray analyst Safa Rashtchy, who predicts Amazon's loss will be between 18 cents and 20 cents a share. (Rashtchy rates Amazon a buy, and his firm has no investment banking relationship with Amazon.)

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An upside announcement from Amazon could help maintain its stock's recent strength. Amazon has risen about 40% in the past month. It's up only slightly on the year.

Easy, Big Guy

Of course, there is reason for caution. The company hasn't preannounced its earnings this quarter, which Amazon has a tendency to do when it has good news to report. In each of the past two quarters, the Seattle-based company gave investors an early glimpse of its earnings, which exceeded estimates. And even if Amazon comes out ahead in the second quarter, the questions about profitability and the health of its balance sheet that have percolated all year will likely get plenty of play during the conference call with management.

Amazon has changed its focus this year from the pursuit of revenue growth to the more mundane task of becoming profitable. The company has said it expects to break even on a pro forma basis for the first time in the fourth quarter. It has also said it is "well-positioned" to turn a profit on a limited basis for the full year of 2002. Given its strong first quarter and the likelihood that it will surpass estimates in the second quarter, it's unlikely that Amazon will back away from either prognostication. But if it does, expect investors to react accordingly.

Investors and analysts will also scrutinize Amazon's balance sheet for any sign that the company's cash position is weakening, a development that would raise the specter of suppliers tightening credit terms. That would revive the

debate ignited earlier this year by Lehman Brothers bond analyst Ravi Suria, who penned a controversial report saying that Amazon was in a precarious cash position and could face a creditor squeeze by the second half of 2001.

Devil in the Details

Amazon has some positive metrics on its side. Traffic to the site was surprisingly strong in the quarter, according to data compiled by industry group Nielsen NetRatings, causing several analysts to publish bullish reports in recent days. But other observers advise investors not to rely too much on such statistics. "We caution investors that secure-site visitors are not perfectly correlated with revenues, as product mix, order size, conversion rate and order frequency all affect reported revenue," says Mark Rowen, who covers Amazon for Prudential Securities. (He rates Amazon a sell, and his firm does not have a banking relationship with the company.)

Some other details will be closely watched. For one, there's the question of how fast the company's U.S. books, music and video business -- its largest and only profitable segment -- grew. Last quarter, the division grew a paltry 2% amid a general slowdown in demand for those goods across the industry.

Also of interest will be the performance of Amazon's fast-growing but money-losing consumer electronics and international businesses. Both need to show improvement to inspire confidence that the company can reach profitability. For example, the consumer electronics segment is Amazon's fastest-growing business, yet is widely believed to be bleeding cash. As a result, the company's ability to buy directly from manufacturers, and thus enjoy lower prices and marketing deals, has been a

key issue for Amazon. On the conference call following the company's release, analysts will no doubt grill management on the company's progress in inking distribution deals with major electronics manufacturers.

Whatever happens with Monday's earnings report, this much is certain: Amazon will remain one of the most controversial companies on Wall Street, whose analyst ratings run the gamut from sell to strong buy, and will do so at least until the company shows sustained profits.