Amazon.com's shares dropped more than 20 per cent yesterday as investors' weakening confidence in online retailers spread to the sector's pioneer. The fall, prompted by worries about its sales and credit strength, means the company's shares have lost 69 per cent of their value over the past six months.
The Dow Jones Internet Index has lost 44 per cent of its value since March. To date the shakeout in the dotcom sector has hit smaller, weaker companies hardest. The consensus among investors had been that a flight to quality would favour more established names like Amazon.
Analysts said Internet stocks were now being punished for even the most modest disappointment, in contrast to investors' previous willingness to leap on any optimistic forecast. Shares in Amazon, which did not immediately return calls, dropped more than 20 per cent, or $8, to $33 by lunchtime. The price on its US convertible bonds fell 23 per cent, from 75 cents to 58 cents, traders said.
Analysts at Morgan Stanley and Goldman Sachs, both of whom have been bulls of the company, said they saw "no upside" and a modest threat to their predictions for second and third quarter sales numbers.
Mr Ravi Suria, a Lehman Brothers credit analyst, described the group's credit as "extremely weak and deteriorating", and said Amazon was "under extremely high risk" as it approached the crucial Christmas season.
Ms Mary Meeker, the influential Internet analyst at Morgan Stanley Dean Witter, said she saw some risk to her revenue predictions for the coming two quarters, although she kept her second-quarter forecast unchanged at $600 million. Amazon is expected to report second-quarter earnings in the third week of July.
Mr Anthony Noto of Goldman Sachs said he also expected $600 million of sales: "I don't see any upside for the second quarter, and I don't see any opportunity for upside for the rest of the summer." That is a contrast to Amazon's past record of comfortably exceeding estimates for its quarterly results. Some equity analysts criticised Lehman's Mr Suria for saying that Amazon had "a weak balance sheet, poor working capital management, and massive negative cashflow - the financial characteristics that have driven innumerable retailers to disaster throughout history".
