PracticePeople In crisis. crisis.

The future of, frequently touted as a web success, is in

Will Amazon’s goose be cooked by Christmas? If the financial gurus at Lehman Brothers have got it right, the next few weeks should prove crucial for the world’s biggest online retailer, and one of the web’s most trumpeted ‘success stories’,

Either Christmas shoppers will go on a huge internet spending spree, pushing Amazon’s sales for the quarter above the $1bn (#691m) mark for the first time, or its trading patterns will remain much as before, with the company likely to be plunged even further into the red as it struggles to contain operational costs.

Fears over Amazon’s ability to survive were first sparked back in July when Lehmans predicted it would run out of cash by early next year. And last week, when the firm reported a pro forma operating loss of $68m (#46m), Lehmans was sticking to its guns.

As Ravi Suria, a Lehmans convertible bond analyst, warned investors soon after Amazon’s third-quarter results were announced: ‘Despite the undeniable improvement in current performance, we reiterate our stance – it is the fourth quarter that makes or breaks a retailer.’

And, he added, people should avoid buying Amazon stocks until the mist had cleared. But if the unthinkable happens and Amazon does go down the Swannee, the fallout for other dot.coms could be huge – perhaps all the more so in the UK, where City investors have long been shy of such stocks and are already running scared following the spectacular collapse of companies such as and

So just how perilous is the situation for Amazon? For one thing, the web giant’s losses were actually down from the $79m reported in the third quarter of 1999, while sales were up 79% to $638m. Not only that but as the company has revealed, it also has $1bn in cash held in reserve and marketable securities.

Perhaps the single biggest thing in Amazon’s favour, however, is that it has 25 million registered customers worldwide and they keep coming back to buy CDs, books and other online wares.

But the flip side to this is that the retailer continues to lose money by the shed load.

Despite the pronouncements by Amazon’s chief financial officer Warren Jenson that it is now ‘driving towards profitability’, it remains to be seen how long investors will stay patient. Amazon’s shares, once as high as $113, have today fallen to almost a quarter of that value.

The news that the US Securities & Exchange Commission is holding an ‘informal inquiry’ into how the company accounts for, and discloses, its investments in other dot.coms, is not helping matters either.

Financial websites in the US are already abuzz with suggestions that Amazon is guilty of potentially dubious accounting practices, with many amateur investors arguing that it is no longer a matter of if the retailer will collapse, but when.

Back here in the UK, Amazon is not even among the top five most visited websites according to figures compiled earlier this year by Media Metrix.

That honour goes instead to the likes of Yahoo, Microsoft’s MSN and Dixons subsidiary Freeserve.

Meanwhile, although Amazon has been going for five years now, its gradual decline in many ways mirrors the misfortunes of Boo, which went bust in May leaving millions of pounds of debt and 300 people without jobs. It too witnessed an exodus of investor confidence as costs continuously exceeded revenues.

A similar fate befell ClickMango and even though Freeserve, the UK’s top internet service provider, has Dixons’ backing, its first annual results in June this year showed losses of around #20m – a factor that probably explained the decision by Deutsche Telekom subsidiary T-Online not to buy it, as had been widely mooted.

All of which might generally suggest that the writing is on the wall for dot.coms. But over at First Tuesday, the marriage broking forum for internet startups and venture capitalists, founder Julie Meyer is nothing if not upbeat.

She counters that Amazon’s increasing revenues should be seen as evidence that the dotcom sector is anything but bust, and says her convictions have been re-enforced by her own experiences in the UK.

If anything, she claims, there is a new generation of internet entrepreneurs starting to emerge who are more financially au fait than their predecessors, have realistic turnover targets and who tend to set their sights on the new opportunities thrown up by the mobile sector. What’s more Bluetooth – a technology specification that describes how mobile phones, computers and personal digital assistants should communicate with each other – is providing further opportunities.

The cold winds blowing across from the US might have left many UK internet entrepreneurs feeling down, but they are far from out. Not only that, Meyer reveals, but First Tuesday is also doing nicely itself from the two per cent cut it takes for matching around half a dozen startups with financiers every month. The list of hopefuls is whittled down from a field of 300 and each matchmaking event typically yields a #250,000 fee.

Murray Hancock, chief executive at Four Leaf, a similar club for fledging internet companies, also reports that while Amazon’s performance, or lack of it, always has a big impact on investor psychology in the UK, the fact that it has stayed around so long is testimony to the long-term viability of the sector.

Meanwhile, he predicts that start-up firms that cannot persuade financiers to help them out will be forced to seek the support of established bricks and mortar organisations. ‘For most entrepreneurs, it’s just a case of keeping your head down at present,’ he says.

‘The hype about the industry may have blown over, which is not a bad thing, but there will definitely be an upswing again. And this time the companies will be stronger than ever.’

In other words, Christmas is coming – be it better or worse for Amazon.


Vendors who are providing hardware, software or services that are genuinely useful for e-business, rather than simply legacy products with an ‘e’ slapped in front, have seen encouraging levels of growth in the last three months.

The huge amount of data generated by e-business has resulted in a rise in the storage needs of most companies. As a result, Sun Microsystems has seen massive demand for its Sun StorEdge T3. The firm soared over expected forecasts with an 85% jump in net income based on a 60% growth in sales.

Despite the challenge from Sun StorEdge, storage sector leader EMC has also exceeded analysts’ expectations. It can boast year-on-year income growth of 55%. This was despite a slowdown in the company’s high-margin software business. EMC executives attributed the slowdown to the shortage of a key hardware component.

EMC’s overall growth places it fourth behind Cisco Systems, Microsoft and Intel in valuation in the high-tech sector.

German software giant SAP has shown a 27% rise in sales. The company points to increased sales of e-business platform, accounting for 61% of total licence revenues. AOL’s third-quarter earnings are double that of the same quarter last year. This is due to an 80% increase in revenue from advertising and ecommerce, which now represent 33% of AOL’s total revenues.

In contrast, IBM shares plunged after the release of third-quarter figures.

They showed a drop in revenue for the third time in the last 12 months.

The impact of the figures brought the Dow Jones Industrial Average below 10,000 for the first time since March.

Microsoft’s first-quarter earnings were higher than expected. But the increase in net profits resulted from an increase in investment income from the sale of TransPoint and Titus Communications.

Investment income for this quarter totalled about $800m, making up 43% of net profits. Apple’s fourth-quarter results were below predictions, and the company has already touted warnings about results next quarter.

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