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Amazon soars on $400 target
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December 16, 1998: 2:38 p.m. ET
Shares of pioneering online retailer surge 19% as Wall St. boosts target price
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NEW YORK (CNNfn) - Pioneering online retailer Amazon.com played Pied Piper to an Internet-sector rally Wednesday, surging more than 19 percent on the Nasdaq after a prominent Wall Street brokerage firm raised its target price for the red-hot Internet issue to $400 a share.
Henry Blodget, an analyst with CIBC Oppenheimer, set the $400 target shortly after trading opened Wednesday.
In a research report issued Wednesday, Blodget said he had based the upward revision on the company's enormous success in expanding its franchise and market opportunities beyond the traditional domains of books and music. Blodget also suggested that Amazon's unprofitable days are numbered.
"We continue to believe that Amazon.com is in the early stages of building a global electronic-retailing franchise that could generate $10 billion in revenue and earnings per share of $10 within five years," Blodget wrote in the report.
The $400 target, if attained, would vault Amazon into a new Nasdaq dimension, well above the stock's 52-week trading range of 24-7/8 to 243 within which Amazon shares had fluctuated before Wednesday.
The target also underscored the euphoria that has swept the Internet sector in recent months, elevating some of the most popular stocks to dizzying heights.
The enthusiasm has been tempered, in some quarters, by warnings that some of the companies caught up in the tumult may lack the financial underpinnings to justify their sky-high valuations.
Shares of the Seattle-based Amazon.com (AMZN), which turned the concept of online bookselling into a booming global business, had soared 46-1/4 to 289 on the Nasdaq by Wednesday afternoon, touching off a copycat spree among big-ticket cyberspace rivals such as Books-A-Million (BAMM) and Barnesandnoble.com (BKS). At one point, Amazon shares had traded as high as 292.
Shares of Books-A-Million surged more than 80 percent, spiking 8-7/16 to 18-1/2. Barnesandnoble.com stock jumped 2 to 32-1/4, a 6.6 percent rise.
Other red-hot Internet stocks that rallied on Amazon's coattails included Internet portal Yahoo! (YHOO), which jumped 7-15/16 to 205-15/16 and online auctioneer eBay (EBAY), whose shares climbed 20-3/4 to 214-3/4, or 10.70 percent.
Blodget asserted that Amazon stock, while "incredibly expensive relative to near-term expectations" and "scary to buy" is large enough to support a market capitalization substantially higher than the current valuation.
"As with all Internet stocks, an (Amazon) valuation is clearly more art than science, and we believe that the stock will continue to be driven higher in large part by the company's astounding revenue momentum."
Amazon.com led nine companies whose names were added to the Nasdaq 100 Index Monday as part of the exchange's annual reshuffling. As recently as Dec. 4, before the latest run-up in its share price, Amazon.com was trading as low 182-1/2.
Analysts point out that Amazon has continued to expand its franchise as it aggressively branches out into other retail markets beyond its traditional cyber-shelf staples of books and music.
Blodget said he felt comfortable applying revenue multiples of 10 to 15 times in calculating Amazon's future target price because the company's past performance and future prospects supported such lofty assumptions.
In particular, he cited current revenue growth of more than 300 percent a year and the fact that the penetration of electronic commerce is lagging online access by about a year, suggesting a sharp rise in Internet shoppers in the near future.
Amazon has a total market capitalization of $14.7 billion. While the company is yet to become profitable, Blodget expressed confidence that a turnaround is in the offing.
In the past, he insisted, "the biggest money has been made by investors who had the foresight to invest in the stocks of the leading companies before their business models were proven."
"We firmly believe," he added, "that Amazon.com will one day make a lot of money, and we find it hard to believe that if our aggressive growth scenario stays on track over the next 12 months, the stock's upward trend will reverse itself."
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