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In the weeks and days prior to the earnings release, as if to prime Wall Street, Amazon struck a series of agreements with


and five Internet companies that

Salomon Smith Barney

analyst Holly Becker describes as being in their "very early stages, even by Internet standards."

The deals call for Amazon to invest in these companies, most of which have little in the way of revenue, in exchange for multiyear payments from these upstarts of more than $100 million per year. Another way of looking at it, some analysts believe, is that Amazon is taking money from its balance sheet and giving it to these companies, which in turn will give it back starting this year to Amazon in the form of revenue. (Pretty cozy, eh?)

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Amazon, in turn, boasts that its margins are getting better, and no wonder: Because it can count on more than $100 million per year, over the next few years, in income that drops directly to the bottom line.

"My concern is not that it's high-margin business," Chanos says, "but that is becoming the

Boston Chicken


of the Internet, because they're funding companies with cash or stock and turning around and having those companies pay them fees in cash." By contrast, Boston Chicken was funding unprofitable units in return for royalties in the form of IOUs, with no cash changing hands.

Well, isn't that what

America Online


did in its early days? (That's the story being spun by the bulls.) AOL, in many cases, was doing biz with more established companies and it didn't have warehouses and it was minting money from everybody who signed onto its service.

So, what's Amazon really up to? Well, it's in dire need of cash. Based on cash burn and its current negative working capital, some skeptics believe Amazon is only a couple of quarters, tops, from running out. As a result, Amazon is believed to be dressing itself up (by using such words as "profit") for a speedy sale of additional stock, and analysts -- in hopes of getting cut in on the deal -- are towing the company line.

"Some sell-side analysts are selling their credibility down the river to see one more investment banking fee," Chanos says. Word in some investment circles is that a deal could come within six weeks -- assuming that Amazon's stock remains robust.

That depends on whose definition of profit investors want to go by.

Some analysts have been telling clients that as long as Amazon can continue to raise cash, it'll be fine. Of course, that's what they said about Boston Chicken, too, and that's one clucker that came home to roost.


Despite the company's claim that its losses will narrow, several analysts, while upgrading the stock to a "buy," projected wider losses for the year, thanks to ballooning overhead. (Go figger!)


Several analysts who like Amazon mentioned in their post-earnings reports that Amazon's financial model is starting to take on the attributes of a traditional retailer. Well, Amazon currently trades at about 18 times sales. That compares with 1.7-times sales for



and 0.9-times sales for

Best Buy


-- two other highly regarded, fast-growing retailers.


None of this says that Amazon isn't a fine place to shop. "It's a great company if you're a consumer," PaineWebber's Farley says. "But it's important to distinguish between value to a consumer and value to an investor."

Some investors, unfortunately, always confuse the two.

Amazon officials couldn't be reached for comment.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.