Amazon.com Bear's Rebuttal
by David Forrest (TMF Bogey)

While Louis did a nice job of describing to you Amazon's recent past (I guess "recent" is the only past it has huh?), I think he misses some serious points. All in all, I agree with him that Amazon has done nicely so far. I also agree that the company's customer service kicks butt. A great product doesn't always make for a profitable investment though. Just ask the owners of Boston Market <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOST)") else Response.Write("(Nasdaq: BOST)") end if %>, which despite having great food, a nice name brand, and strong unit growth has had its stock driven into the ground, putting the stock at a negative return since its IPO.

The major point that Louis misses is the concept of risk and reward. Is Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> a great company? Of course! Is it always a great investment? Well, considering that last year the stock went absolutely nowhere in a market that was up more than 20%, I'd guess that some folks thought Intel was too overvalued and not worth the risk. Amazon, while on a roll, is simply too expensive to justify the inherent risk of investing in such a young company.

Let's face it, if Amazon falters, the stock will get creamed. Look what happened to Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %> recently and Ascend <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> last year. Slip up and you get crushed. Amazon will be no different should expectations be missed. I argue that if you are going to take all of that risk, you'd better at least believe that the payoff will be enough to justify the risk you take. Based on my assumptions in the of 16% capital appreciation (my best case scenario) over the next four years, I just can't justify buying or owning Amazon at $59. Heck, history tells me that I can get about 11% in an S&P 500 index fund with reinvested dividends. Why take all of the extra risk associated with Amazon at these prices?

I'd also like to take issue with a few other things. Louis writes: "Wherever you go, it's there."

Hardly. Perhaps Amazon is seen online a lot, but only 10% of the country is online so far and all future users have at least a $1000 investment in a computer as a barrier to entry to become an Amazon customer. While I know that the online community will continue to grow exponentially, to say that Amazon is "everywhere" and to liken it to Coke, Nike, or Home Depot is stretching things just a wee bit.

Louis also writes: "Bottom line, every investor should want to own Amazon. It's also a fun stock to own."

Er... don't mind me, but I'll keep Grandma out of this one, thanks. As for Amazon being a fun stock, I couldn't care less how much fun it is, so long as it meets my needs in terms of total return. The company may be fun and the books enlightening, but a stock can be plain old boring unless it "shows me the money!"

The thing I found most amusing about Louis' bull argument is that he actually started getting bearish when he ran the numbers! Re-read his initial bull argument and you'll see what I mean.

In the first few paragraphs he says with enthusiastic guns blazing that Amazon is "...synonymous with "online bookseller," and category killers can be worth a bundle." And he adds: "Bottom line, every investor should want to own Amazon."

Then after crunching some numbers, he writes: "As much as I think Amazon is a stock you want to own, you probably shouldn't rush to buy it unless you can justify more aggressive sales and earnings estimates than Jeff offered. There's just a lot of risk for the expected returns.... So call me a confirmed but cautious Amazon bull."

So, which is it Louis? Should "everyone want to own it" or should we "not rush out to buy it unless..."? I think Louis tried to love Amazon, but when he looked hard at the numbers he just had to temper his enthusiasm. Don't worry Louis, I'm here for ya, man.

Next: Cast Your Vote!