Recent moves have
facing an unusual question as its Wednesday afternoon quarter financial report looms: Just where is the online bookseller going?
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In the last week, Amazon has laid off 150 employees, a first at the Seattle-based bookseller and e-tailer. At the same time, the company has inked a flurry of deals with smaller e-tailers that will boost revenue for Amazon and traffic for its partners. Those actions arose soon after Amazon warned
last month that rising fourth-quarter revenue wouldn't aid profit margins.
For some, the convergence of those events has injected an unpleasant amount of uncertainty into a stock that was once seemingly invincible. And analysts say Amazon's stock, which has dropped 25% since Jan. 3 despite a 4.5% jump Tuesday, may slide more before it stops its tumble. This means that, once more, the actual numbers in the quarterly report will be of secondary importance.
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consensus of 28 analysts calls for a loss of 48 cents per share for Amazon's fourth quarter. But as is often the case with richly valued dot-coms, Amazon faces the prospect it will have to outperform simply to avoid taking a big hit in the stock market.
"This thing's scaring me to death," says Abel Garcia, manager of the $3.7 billion
Science & Technology fund, which holds Amazon shares. "I think they may be trying to do too many things at once."
For Garcia, last week's layoffs were particularly disconcerting. He points to the conflicting signals sent by layoffs at an expanding company.
"I'm a little confused; it sends kind of a mixed message," Garcia says. "Normally, growth companies aren't supposed to lay people off."
Raft of Deals
Meanwhile, Amazon has strung together a raft of deals in the last two months. The latest came on Tuesday, when Amazon roped
into a deal to pay Amazon $145 million over five years in exchange for an investment from Amazon and prominent real estate (read, access to Amazon's 16 million customers) on the bookseller's site. The deal follows similar arrangements with
(Monday, for $30 million over three years),
(Jan. 24, for $105 million over three years) and
(Jan. 21, for $82.5 million over five years). In December, Amazon announced an investment in
Analysts have generally been positive on these deals. But the analysts also raise questions about the company's inability to make money in its core e-tailing business. In short, why does Amazon the online bookseller have to act like Amazon the online investment bank to book high-margin revenue? Accordingly, Sara Farley, an analyst at
, says the deals themselves deserve scrutiny.
"One of things we're looking at with those deals is how long they can last, because they've put those companies in some pretty formidable positions," says Farley, who has a neutral rating on the stock and whose firm hasn't done underwriting for the company. "drugstore.com is paying Amazon $105 million over the next three years. They'll have to gain a heck of a lot of customers for the deal just to get $105 million in revenue."
So what does the company say to all this? Bill Curry, Amazon's spokesman, says the $23 billion market-cap company is still in the "investment phase" of its business. "The only thing I can reiterate is that the fundamental strategy has not changed," Curry says. "Even as a result of the events of last week, we are still going toward our goal to be the leading destination for e-commerce."
Garcia, the mutual fund manager, isn't sure what to believe.
"I may add to my position if they get killed after earnings, but there's so much spin on this, I just don't know."
"I don't think all the uncertainty is priced into the stock," adds Henry Blodget, the Internet analyst at
who made a widely bullish (and correct) call on the stock in December 1998. "But I also think it's certainly possible that they could have some unexpected good news on Wednesday." Blodget rates the stock accumulate, and his firm hasn't done underwriting for Amazon.com.
One thing investors can be sure of: Amazon will need to answer a lot of questions -- convincingly -- on Wednesday to clear the air.