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Now's No Time to Go Jumping Into Amazon

This is no bargain: There's no clear sign that the fundamentals are improving.
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Though shares in Internet retailer

(AMZN) - Get Inc. Report

reached an all-time low Wednesday, now is no time to buy.

Too many unanswered questions remain.

While the company appears to have quelled concerns that it could face a cash crunch soon, an issue that dominated much of the Amazon chatter earlier this year, the profitability outlook is still blurry. The company has promised to break even for the first time -- but on a limited basis, don't forget, which excludes many normal expenses -- in the fourth quarter of 2001.

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Yet this target could be in jeopardy, given the slowing economy. In the second quarter, the company was forced to ratchet down its revenue guidance for the second half. Early evidence suggests the third quarter could be worse than expected on the sales side -- ComScore, a new research firm that tracks sales at online retailers, estimates that sales fell 9% in July from the previous month, excluding international and services,

The Wall Street Journal

recently reported. This backsliding has irked some Wall Street analysts, and was blamed in part for the recent plunge in the share price.

In addition, several other metrics should be cause for concern. As

has highlighted, there is evidence that Amazon's customer base, long considered one its most valuable assets, isn't as loyal as many once assumed. Amazon's most recent quarter, for example, was the sixth straight quarter in which loyalty numbers declined.

And then there's the cash question. While the dire predictions that the company would face tighter credit from its suppliers have not panned out, Amazon nonetheless burned through cash faster than expected in the second quarter. The risk is that the company could have negative working capital and little cash left by the first quarter of 2001, when it must pay its bills from the holiday season.

But perhaps most important, at least in the near term, is a lack of visibility. Unlike bricks-and-mortar retailers, which release monthly sales figures, Amazon reports sales only quarterly. Thus, given the increasingly shaky consumer economy -- and economists' prediction that the upcoming holiday season could be the worst since the early 1990s recession -- betting that Amazon can deliver in the all-important fourth quarter is not a risk worth taking.