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Hi guys - I would like to go back and read the comments by Merrill Lynch which someone posted in the not too distant past. These remarks set forth their reasons why AMZN could turn out to be a lousy investment. Haven't been able to find it. Thanks for a push in the right direction. Mucmara
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I was the original. Here you go:

"Amazon.com Inc – 15 September 1998
2
Following ongoing conversations with companies in both
the physical book distribution and retailing markets, and
also with companies in the online commerce space, we
would add some further thoughts to our discussion of
Amazon.com's operating model.
1) It seems that the model for online retailing is
becoming split into two parts, consisting of:
a) Those companies with sufficient operating scale
and/or brand equity in the physical world that can
leverage themselves into the online space with
significant competitive advantages. Companies in this
group include pure-play retailers (such as Barnes &
Noble) and also companies which have taken
advantage of physical assets while redefining the role
of IP networks and real-time information streams for
their business (such as Federal Express).
b) Those companies which have embraced a virtual
commerce model predicated on not owning physical
inventory or infrastructure. Companies in this group
will generally operate on an agency (as opposed to
principal) basis.
2) Our specific concern regarding Amazon.com
(independent of the valuation issues we have
discussed previously) is that it sits between those two
models. The company is not large enough (in terms of
order volumes and distribution infrastructure) to
generate the economies of scale necessary to compete
effectively with large physical-world retail chains. At
the same time, Amazon.com is far too large (in terms
of the cost structure associated with its proprietary
inventory and distribution systems) to compete
effectively with companies which forego that structure
and provide a linkage with existing distributors.
3) We believe that the notion that Amazon.com will be
able to profitably leverage its (diminishing) market
share in online book sales into other, largely unrelated
business lines may prove overly optimistic. As in the
physical world, we have begun to see online users
congregate either at mass-market locations (shopping
malls, AOL, Yahoo!), or at places which provide a
much more specific user experience (specialty stores,
special-interest Web sites, Usenet groups, etc.). Given
the company's very large advertising budget and its
willingness to generate substantial operating losses,
we expect to see Amazon.com garner a meaningful
initial share of online music sales. We do not,
however, expect to see any near- to intermediate-term
profitability associated with those sales. More
critically, we do not believe that online commodity
product sales produce the sort of brand equity
generated by the distribution of proprietary
information or media products. The implication here
is that while it may make economic sense for Yahoo!
to lose money while building a user population, it
probably does not make sense for Amazon.com to
follow in the same path.
Amazon.com's current valuation lies significantly above
the regression that describes the valuations of other
Internet companies (that regression correlates
price/revenue valuation multiples to expected long-term
corporate operating margins). Given both the concerns we
have outlined above and the magnitude of the company's
valuation premium, we continue to recommend that
investors exercise significant caution towards
Amazon.com shares.
[AMZN] The securities of the company are not listed but trade over-the-counter in the United States. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from
registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 1998 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). This report has been issued and approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is
regulated by SFA, and has been considered and issued in Australia by Merrill Lynch Equities (Australia) Limited (ACN 006 276 795), a licensed securities dealer under the Australian Corporations Law. The information herein was
obtained from various sources; we do not guarantee its accuracy or completeness. Additional information available.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments").
MLPF&S and its affiliates may trade for their own accounts as odd-lot dealer, market maker, block positioner, specialist and/or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite side
of public orders. MLPF&S, its affiliates, directors, officers, employees and employee benefit programs may have a long or short position in any securities of this issuer(s) or in related investments. MLPF&S or its affiliates may from
time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report.
This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific
person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that
statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive
back less than originally invested. Past performance is not necessarily a guide to future performance.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced
by the currency of the underlying security, effectively assume currency risk."
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- Grudolph, Thank you very much for providing these comments from Merrill again. I wonder why TMF provides a link to "Negroponte's comments on e-commerce" but not to something like this. Mucmara
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You think they're going to say anything negative about a stock they hold? Not likely..
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<<I
wonder why TMF provides a link to "Negroponte's comments on e-commerce" but not to
something like this. Mucmara>>

Wonder no more, Mucmara. If that report from Merrill was freely accessible at a public website, then I missed it and apologize for not posting a link to it. If, however, the report was made available just to Merrill clients or by subscription only, then we'd be prohibited from posting proprietary material.


Jeanie
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Grudolph, Thank you very much for providing these comments from Merrill again. I wonder why
TMF provides a link to "Negroponte's comments on e-commerce" but not to something like this.
Mucmara


Mucmara,

I do not know. I do not even know who is Negroponte<G>

Glenn
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Wonder no more, Mucmara. If that report from Merrill was freely accessible at a public website, then I
missed it and apologize for not posting a link to it. If, however, the report was made available just to
Merrill clients or by subscription only, then we'd be prohibited from posting proprietary material.


Jeanie,

The report is an internal Merrill report. However, via email request, they will forward it to anyone. They do not permit non clients on their site due to security purposes in terms of account balances etc. The reports are stored in PDF format and the projected revenue numbers and losses are copyrighted. I did not post those for that reason.

I have accounts with DLJ, Merrill, Morgan Stanley, and a few others and most of the sell side analysts reports are copyrighted. I do what I can to post what is permissable here.

There does appear to be a definite pro bias by TMF on Amazon and I have a negative bias.

You can tell from my prior posts that I strongly believe Amazon will fail but online e-commerce will not. The specific reason is the Amazon business model will not work. I explained why in a previous post too.

Glenn
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Glen<There does appear to be a definite pro bias by TMF on Amazon>
That is the understatement of the year!!
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Hi Jeannie - Thanks for your comment about the Merrill Comments (complements of grudolph). I certainly don't mean to single you out for criticism. The point is about impartiality and ultimately, credibility. The same "lovely bullish spin" can be observed at other Fool Port folders. Lets digress from Amazon and go back in time a while. In the early TMF days, there was Iomega (not that Iomega is history), but TMF and Iomega became well known at the same time didn't they? In fact, one might say they made each other famous. The Wall Street Journal and other publications noted TMF's instrumental role in puffing it to the skys. (Oh, how the mighty have fallen!) But, hope does spring eternal. Consider TMF Keeler's recent post #9158 over at the Iomega folder. Does it seem just a wee bit optimistic? Your loyal fan, Mucmara.
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<<I have accounts with DLJ, Merrill, Morgan Stanley, and a few others and most of the
sell side analysts reports are copyrighted. I do what I can to post what is
permissable here.>>

Thanks for the explanation, Glenn. Since I don't have your variety of access to brokers' internal reports, I appreciate your willingness to share what you can. Also appreciate your caution about their copyright protections, too.

I know I found Merrill's words most interesting because it's always good to have backup opinions to validate a negative bias. Whether one agree or disagrees with their assessment you have to agree that they have a strong influence on a larger investor base than is posting in this folder, so it's a very meaningful contribution to our discussions.

Jeanie




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