Amazon.com (Nasdaq: AMZN) lost 80 U.S.cents to $16.12 in morning trading Tuesday, after Prudential Securitiesrepeated a sell rating on the e-tailer’s shares, saying they are a”high-risk” investment, and put a price target of $9 on the stock.
Amazon’s base of more than 32 million customers, considered by many to beamong the e-tailer’s most valuable assets, might not be as strong as someinvestors think, according to Prudential analyst Mark Rowen.
“We have become increasingly concerned that Amazon.com’s customers areturning out to be far less loyal than once assumed,” Rowen wrote in aresearch note. “Therefore, we believe that the value of Amazon’s customerbase may be depreciating at a much faster than expected rate.”
While Amazon added 3 million new customers in the first quarter ended March31st, Rowen wrote, the company lost an estimated 2.3 million activecustomers in the same period.
“The average lifespan of an Amazon.comcustomer is approximately 17 months,” wrote Rowen, compared with 51 monthsfor an average direct-mail catalog company.
“Viewing the data from a different angle, Amazon.com had 15.9 million activecustomers in the first quarter of 2000, and we estimate that a whopping 50percent have not returned to make a purchase in the subsequent 12 months,”Rowen wrote.
Also Tuesday, a Reuters report said Amazon chief executive officer JeffBezos has filed with U.S. securities regulators to sell 300,000 of hiscompany’s common shares, worth almost $5 million.
Last month, Amazon reportedly confirmed that U.S. Securities and Exchange Commission was looking into stock sales
made by Bezos inFebruary, just ahead of a negative report on the company from a LehmanBrothers bond analyst.
The “sell” rating should come as no surprise. For one, as an investment advisor, Prudential Securities is more conservative or “prudent” than the average Amazon investor. The question stands whether the rating is justified, and if so, on what basis. Have investors applied the same principles in valuing Amazon’s customer base as they have for mail order catalogues? And is this valuation justified?
I must doubt that this “sell” rating is really based on this notion. Amazon’s stock price rather reflects a controversy that has long been a discussion topic of both Amazon’s investors and bystanders. There are a lot of people who like to point to Amazon as the one example where B2C e-commerce actually worked. On the other side, there are those who point to Amazon as the one most infamous example of a failing business model, and at that, the proof that B2C e-commerce is at most a niche market.
I will not take side in this discussion, but I will make a point of saying that investors need to be cautious about pointing to this or another reason for their valuation of the stock, and rather take the big picture, determine their personal level of risk tolerance and then make an investment decision. I fear, that too many Amazon investors (or potential investors) will look at the “sell” rating and accept it as fact, rather than critically evaluating the stock for what it really is.