Since we have hitched our wagon to their star, I can't be called neutral, but I think Amazon is a reliable, generally customer-friendly company that has blazed the trail for general online retail for the masses. That they are actually making money at it is impressive and reassuring for e-business in general.

Wharton has a mixed view of Amazon's current status:

Given the 86 million consumers that Jupiter Research predicts will be buying gifts online this holiday season, Amazon should be throwing off good cheer all around, right? Not exactly. Wall Street is acting like Scrooge as it frets about slowing revenue growth and diminishing profit margins in 2005. The big problem: Analysts are belatedly coming around to the idea that Amazon may be just a retailer, not some Internet high-flier that will dominate e-commerce. That means Amazon shares should be valued lower. Wharton experts, however, say these short-term worries are overblown although Amazon's business model does raise some concerns. Is being viewed as a retailer really so bad?

The bah-humbug crowd emerged shortly after the company announced its third quarter earnings in October. Amazon reported net income of $54 million on revenues of $1.46 billion, compared to net income of $16 million on revenues of $1.13 billion a year earlier. For the all-important fourth quarter, Amazon predicted revenue growth of at least 31% to $2.29 billion-$2.54 billion. For 2004, sales are expected to be up 32% to $6.67 billion-$6.9 billion.

While those results were strong, analysts panned the company's 2005 projections of sales between $7.4 billion and $8.15 billion, and operating income between $500 million and $625 million. The rub: Amazon's percentage increase of revenue growth falls "significantly to the mid-teens next year while the company increases its operating expenses to build up an even bigger infrastructure," wrote Piper Jaffray analyst Safa Rashtchy in a research report following Amazon's earnings report. "The result is that Amazon is making less money on each incremental dollar of sales."

....According to William Cody, managing director of Wharton's Jay H. Baker Retailing Initiative, Amazon's department store approach could backfire, although he suggests that it's too early to determine how the Amazon saga will play out. "One-stop shopping works well in a department store. But online, another department store is just a click away."

For Wharton marketing professor Peter Fader, this angst over Amazon sounds familiar. In the heady dot-com era of the late 1990s, Amazon couldn't make money but still hit a $400 price target. Then the bubble burst and Amazon was allegedly washed up. Now it's a profitable semi-mature company that is expanding and facing slowing growth. "I don't put a lot of faith in the stock market to value Amazon," says Fader. "And if it is seen as a retailer - which it is, after all - I think that's great because Amazon stacks up well next to other retailers. Compare Amazon to Kmart and Sears with [their] aging companies and customer bases."

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