SAN FRANCISCO -- Amazon.com (AMZN) - Get Report is facing its own Y2K crisis: For the first time ever, the online retail giant will show a decline in sequential quarterly revenue growth in the March 2000 quarter, according to Wall Street analysts.
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Like many Internet companies, Amazon.com is a revenue-growth story. Without earnings, analysts and investors base Amazon's progress on customer growth, traffic, and above all, revenue. And quarter after quarter Amazon was hugely successful. But many analysts expect the company to show a decline in revenue from the fourth quarter to the first quarter, a first for the company that will make its income statement look a little more like a traditional retailer and a little less like an Internet hotshot.
Warburg Dillon Read
expects revenue of $545 million in the fourth quarter and $503 million in the first quarter;
Deutsche Banc Alex. Brown
expects revenue of $550 million in the fourth quarter and $490 million in the first quarter. (Deutsche Banc has performed underwriting for Amazon, while Warburg hasn't.) The fourth-quarter revenue consensus of eight analysts tracked by
is $525 million. But the consensus of five analysts for the first quarter is $480 million, a 9% drop from the fourth-quarter projection.
Amazon.com declined to comment on those forecasts. "We've grown consistently quarter-over-quarter," says Sharon Greenspan, an Amazon.com spokeswoman. "Whether that will grow or decline (from Q4 to Q1), we can't say."
Even more disturbing, the revenue decline is coming when the company's losses are continuing to climb rather than decline. Analysts surveyed by
First Call/Thompson Financial
expect Amazon.com to post a loss of 34 cents a share in the first quarter of 2000, down from 48 cents in the current quarter but up sharply from 12 cents a share in the first quarter of 1999.
Because many individual investors are accustomed to growth each and every quarter, the decline could be a disaster waiting to happen, says Curt Rohrman, manager of the
USAA Science & Technology fund and the
USAA First Start Growth fund. Both funds sold Amazon.com shares after the company reported third-quarter results. "A sequential decline in revenue is a bad thing. There's no way around it," he says.
A year ago, Amazon's revenue rose 16% from the fourth quarter of 1998 to the first quarter of 1999. The current quarter will see a sequential revenue increase, thanks to holiday sales and the launch of new areas such as toys and electronics.
projects Amazon's fourth-quarter revenue could reach $633 million, a 78% rise from the third quarter and up 150% from the fourth quarter of 1998. But toys tend to sell poorly during the first quarter. "Toys will go to almost zero in Q1," says Rohrman.
Just because the company's revenue performance may start being seasonal -- meaning the fourth quarter is the strongest, followed by a weak first quarter -- isn't a bad thing. "It's a signal that it's reaching the point of moving out of hypergrowth to just growth," says Sara Zeilstra, a Warburg Dillon Read analyst who rates the stock hold. She's expecting Amazon's revenue to grow 58% from 1999 to 2000, less than the 147% growth she's projecting for this year. But she adds, "It's still phenomenal for a retailer to show growth in the double digits."
Even though its revenue is starting to show signs of a traditional retailer, Amazon "is still deep in the heart of accelerated growth," says Karl Haller, a consultant at
. That's because the company is showing growth in existing categories, branching into new areas and acquiring new businesses.
Just as traditional companies struggle to have their stocks valued as Internet companies, perhaps Amazon.com will struggle to keep having its valued as a pure Internet company that's still growing at warp speed.