Is There a Future for E-Commerce?

“No one is buying this company’s stock for this year or even next year,” analyst Joseph Buttarazzi of Adams, Harkness & Hill said. “They’re looking at 2002 or beyond.”

We were talking about a dot-com that is currently going through some serious struggles — stock currently trading below $10 (US$) a share. But Buttarazzi’s remark carries a suitcase of truth to everyone in the dot-com world. The future is not now. The future is not next week or next month, and it may not even be next year. The future is way off in the distance, and it is shining very bright.

There was a time when the people building businesses, careers and stock portfolios chased the rainbow’s end for the thrill of getting just as close as possible. Even though they knew the pot of gold would always be just out of reach, they operated with the certainty that it was there.

But now the atmosphere is changed. Everyone is in such a mad rush to grab the tail of the rainbow, one of these days someone may actually leap right over it — only to find that the magic has dissolved and the pot of gold isn’t there.

Signs, Signs, Everywhere Signs

This month, a shopping mall outside of Boston will launch its Internet shopping site, which will eventually allow shoppers to buy online and pick up their goods at the store — possibly even at a drive-through mall window. The program is one of dozens like it being unveiled as traditional retailers realize two things: First, that e-commerce is not going to wipe them out; and second, that e-commerce is a damn fine way to do business.

This cross-pollination of real-world malls and online stores is just one example of how much growth is ahead for e-commerce. But these promising innovations are part of the not yet touchable future.

Tomorrow, Tomorrow

Thinking long-term is difficult, especially for investors who bought stock in companies like when they were at the pinnacle of their valuations, only to see their investments slide inexorably into near-oblivion. And now the latest round of earnings news is causing even more damage to those share values.

It is easy to see why — Amazon continues to lose money, and the ranks of the doubters are swelling. But with $1 billion in the bank and instant name recognition — even among non-Netizens — Amazon has a good chance of becoming a profitable company within the next dozen or so quarters.

The same goes for a host of other high profile dot-coms. Their immediate futures are cloudy at best, but in the longer term, their outlooks have to be considered promising.

What is happening now is the polar opposite of what caused the run-up in stock prices for companies like Amazon. The same follow-the-leader mentality that sent the stock to alpine heights is bringing it back to sea level. The fact that four investment houses have downgraded Amazon stock in recent days indicates some deep cracks in the facade, to be sure, but does it really spell doom?

Despite apparent profitability in several areas, including its flagship books division, Amazon was unable to spin its earnings report out of harm’s way. When analysts and investors see slower sales growth, they begin to bite their nails.

More and Less, Please

It is true that analysts are difficult to please. In a recent discussion about — a Boston-based home replenishment company with branches in Chicago, New Jersey, Minneapolis and Washington, D.C. — an analyst told me that Streamline needs to spend more on customer acquisition to grow its business. But five breaths later he said the company needs to keep its operating costs down so it can gain profitability.

No problem. The folks at Streamline will just defy the laws of financial gravity and spend money while also saving it. Obviously, the strategies that analysts recommend and the strategies that companies can realistically carry out are geared for different playing fields — possibly, different ball parks. Analysts have a right to be optimistic, but they should stay grounded as well.

The brokerage houses downgrading Amazon are painting a familiar scene. The company will have to spend heavily to get Amazon fully loaded for the crucial holiday 2000 season, and that will cause a drag on the bottom line. But those who are capable of looking into the future a bit will see an improved top line come early next year. And if Amazon hits home runs with customers this holiday season, maybe in 2002 and 2003 the company will begin to take on a festive sparkle of its own.

The New Realism

I’m not saying that Amazon’s stock belongs back up in the mid-100s. A company’s true value should be reflected in its stock price, and Amazon’s value still lies in the future. Investors who have been seduced by the false promise of instant gratification may already have concluded that Amazon and its kin are involved in a bizarre experiment that will not work. For them, the pot of gold will never materialize.

But those who are willing to let their investments ride — who have the discipline to stand very still after the thunderstorm passes and focus on the colored trail of the rainbow instead of blindly chasing after it — will see a golden gleam ahead.

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