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Bezos on e-com shakeout
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By Staff Writer Michele Masterson April 19, 2000: 6:00 p.m. ET
Amazon CEO sees consolidation; more discriminating investors
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NEW YORK (CNNfn) - Amazon.com founder and chief executive officer Jeff Bezos believes the e-commerce industry is headed for a major shakeout as competition intensifies and venture capitalists become more picky about which companies they choose to support.
"I think there's no question that there is going to be an accelerating consolidation and that's very, very healthy for this industry," Bezos said in an interview with CNNfn.com. "In the past, if you look at what ideas have gotten funded, basically all ideas gave gotten funded -- good ideas and bad ideas in the previous climate."
"I think what you're going to see going forward is that public investors and also venture capitalists and the whole chain of investors are going to be much more discriminating in their investments," Bezos said. 
"Good ideas will always get funded, so that's not going to be a problem. But you will see that it will be harder and harder for bad ideas to get funded," said Bezos.
Blodget also sees a shakeout
Merrill Lynch e-commerce analyst Henry Blodget, an early proponent of Amazon, which went public in the spring of 1997, also believes an e-commerce shakeout is in the offing, but he said Amazon can benefit from the industry's tightening.
"We believe there could be a shakeout in the B2C (business-to-consumer) online retailing sector as companies that have had to spend aggressively to gain new customers will be running out of money," Blodget said in research note.
"...This consolidation and shakeout in the space will continue for the next few months but longer-term will bode very well for industry leading companies like Amazon," said Blodget.
Volatility stirs the pot
Considering the recent volatility of the Nasdaq composite, driven largely by massive sell-off of technology stocks, investment in shares of Amazon remains a question mark in many investor's minds.
[Market volatility among technology stocks] is almost certainly true," said Bezos. "You have to remember that in the Internet sector, the Internet companies' share prices have been volatile not just in the last week, but over the last couple of years. That's likely, I think, to continue."
Amazon recently gave investors a glimmer of hope when company executives vowed to pay more attention to profitability this year. The move appeared to signal a shift from the company's previous strategy of putting expansion costs ahead of the bottom line. However, Bezos said Amazon expects to continue to pursue its expansion strategy.
"We try to be a pure investment and a long-term decision making company. No company cares more about profitability than Amazon.com. But I also want to make the most of our opportunity and we would hate to be short-sighted about that," Bezos said.
"Our vision first and foremost is to be the Earth's most customer-centric company and then, within that, to build a place where people can come to find and discover anything and everything that they might want to buy online," said Bezos.
"So, you should expect us to expand and a lot of that will be through partnerships with companies like WineShopper.com," Bezos said.
Amazon takes the long view
Bezos said investors that are attracted to Amazon's stock are, in fact, those in for the long haul and will stick with the company to see profits come perhaps at a later date rather than a day-trading type pay-off.
"There are many types of investors," Bezos said. "There are as many different types of investors as there are investments. Many of these investors are very long-term oriented, many are very short-term oriented and they vary along other dimensions, too."
While that may be true, Blodget said investors are not willing to wait forever for Amazon to break into the black.
 "The big question with regard to Amazon is profitability and when will it materialize?" notes Blodget.
"Ultimately, we believe the company will deliver tens of billions of dollars of annual revenue, meaningful profitability (3-8 percent net) and a compelling return on capital."
"At the same time, however, we continue to be discouraged by one basic trend: a steady increase in our loss estimates without a correspondingly large increase in revenue or profitability estimates," said Blodget.
"We are simply exhausted by the endless postponement of financial gratification - and we think other investors are, too," Blodget said.
While Bezos doesn't say outright that investors should hang in there, he goes back to Amazon's long-term potential.
"One of the things that is most important for a company is to be very clear about their strategy, so investors get to self-select as to whether or not that's the right strategy for them. I think we've done a very good job about being clear that we're a long-term focused company," said Bezos.
 Amazon is due to report first quarter results April 26, after the market close and brokers polled by First Call estimate the company will lose about 36 cents a share. Last quarter, Amazon reported a loss of $185 million, or 55 cents a share, before one-time items. Analysts polled by First Call expected Amazon to post an operating loss of 48 cents per share.
In Blodget's most recent research note, he advises investors to concentrate on Amazon's revenue, in which he is forecasting its first sequential decline due to the seasonality and maturation of the e-commerce industry. He also advises shareholders to focus on new customer accounts, gross margins, marketing efficiency or cost per new customer and revenue per account.
"The single most important piece of information for the stock is management's outlook for Q2 and the year to come," Blodget said. "We continue to think Amazon will be a strong performer, particularly from these levels, for the balalnce of 2000.
In Wednesday trade, Amazon fell 1-1/2 to 53-7/16.
Click here to send e-mail to Michele Masterson 
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