Surge More Likely Is a Short Squeeze

CobraBoy! (
Wed, 24 Sep 1997 09:49:10 -0700

c.1997 Bloomberg News

he recent surge in Inc.'s stock is being powered by speculators who
had bet that the Internet bookseller would flop and now are covering their
investors said.

Amazon's shares rose 1 1/2 Tuesday to 55 1/2, an all-time high, rising 39
percent during
the past three days. The spark came after analysts gave an upbeat
appraisal of a meeting
with top executives at company headquarters in Seattle, the first such
talk since Amazon
went public at $18 a share on May 15.

Still, nothing analysts said justifies the size of the gains, according to
investors and

``It's absolutely a short squeeze,'' said Mike Molnar, head of Nasdaq
trading at Smith
Barney Inc.

A short squeeze occurs when speculators bet wrong. They initially sell
borrowed shares
-- called shorting -- in the hopes of buying them back later at a lower
price. If the shares
rise instead, they are forced to snap up the stock to close our their
bets, driving prices
even higher. That squeezes the remaining short sellers, making their
losses even worse.

As of mid-August, 1.65 million shares of Amazon were sold short out of 3
available for trade. The other 7.5 million shares outstanding are owned by

Normally a company is ripe for a short squeeze when the short position
exceeds 25
percent of the stock that trades. Amazon's short interest is 55 percent.

The squeeze has left Amazon vulnerable to a swift decline that would have
as little basis
in the company's changing business prospects as has the latest surge, said
Fleckenstein, a short-seller who said he steered clear of Amazon.

The backpedaling by Amazon's critics is helping drive Amazon stock beyond
what some
bullish analysts consider a reasonable valuation, given its prospects for

Mary Meeker of Morgan Stanley, Dean Witter, Discover & Co. began covering the
company Friday, telling investors to buy the stock for it's long-term

Still, ``Amazon's valuation gives us heartburn of gargantuan
proportions,'' she wrote.
She published her report when the stock was at $40 a share. Meeker was
unavailable for

Optimism about Amazon was spurred by the analyst conference last week,
agreements, and investor hopes that more than one bookseller can succeed
on the
Internet. Barnes & Noble Inc. is Amazon's biggest competitor.

Amazon is expected to benefit from its early lead and its online prowess,
grabbing a part
of book sales that are expected to move to the Web.

``There is a recognition of what the company is, which most people didn't
have before,''
said Colin McNay, portfolio manager at Essex Investment Management, which owns
Amazon shares.

Amazon is expected to generate sales of $124 million this year and $273
million in 1998,
according to Morgan Stanley's Meeker.

Bears point to Meeker's profit estimates. Meeker expects Amazon to lose
$58.1 million in
the next two years, before reporting a $2 million profit in 1999.


(The Bloomberg web site is at )


Care about people's approval and you will be their prisoner.
-Toa Te Ching

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