Will Jeff Bezos Be the Next Tim Koogle?


And then there was one. The Mar. 7 announcement that Timothy Koogle will step down as CEO of Web portal Yahoo leaves Amazon.com's Jeff Bezos as the lone survivor among chief executives in a select class of highly visible Web companies whose futures seemed assured, but now seem somewhat doubtful. And that raises the question: Can Bezos keep his head when all about him are losing theirs?

Probably the only person who knows for sure is Bezos, who still owns some 32% of Amazon (AMZN) and enjoys the support of a small, tight-knit board. (It consists of only four people -- two of them initial investors -- other than Bezos, who's also the chairman.) Indeed, no one at Amazon's headquarters or among the 26 analysts who follow the company is speculating in public about how long Time's 1999 Person of the Year will maintain his perch as the foremost promoter of the Web -- and of Jeff Bezos. Yet given the pressures bearing down on all Web companies, it's no longer unthinkable that Seattle's second-most-visible exec may not finish his career as Amazon's chief executive.

For one thing, it's hanging season for dot-com CEOs. As top Web properties have hit a wall, so have their leaders. Excite's George Bell, Lycos' Bob Davis, and Priceline.com's Jay Walker are among the noted names who've been kicked out or upstairs after their stocks have plummeted. Now comes Yahoo!'s Koogle, who'll stay on as chairman and help recruit the company's next CEO (see BW Online, 3/8/01, "At Yahoo!, It's Goodbye to the Future"). Yahoo!'s stock is down 92% from its 52-week high, even though the portal has $2 billion in cash, is profitable -- and swears it will stay that way. Koogle is leaving as CEO at a time when his company arguably is in better shape than Bezos'.

LOPING GROWTH. Amazon does seem better off in one respect: It depends far less than Yahoo! does on the anemic Net advertising market. Still, Amazon's stock is down 87% from its 52-week high of $75. Amazon has never come close to earning an overall profit. In 2000, its loss widened to $1.4 billion -- twice the figure in 1999 -- on revenues of $2.8 billion. In 2001, moreover, what was supposed to be galloping growth is slowing to a lope.

Although Bezos promises Amazon will turn in its first-ever operating profit this year, he also warns that the company's revenues could rise by as little as half his initial projection of 40%, to somewhere between $3.3 billion and $3.6 billion. That's partly because adding new customers will be harder than expected: Amazon now sees only 20% to 30% growth, vs. its earlier prediction of 60% to 70%.

Above all is the question of staying power. Amazon brags of having a cash hoard -- $1.1 billion at the end of 2000. But that's only because it hasn't paid its bills, argues Lehman's Bros.' head of convertible-bond research, Ravi Suria, who's regarded as Amazon's harshest public critic. In a Feb. 5 report -- which Bezos has called "hogwash" -- Suria maintains that true liquidity should be measured by working capital -- the resources the company has in hand to run its day-to-day business.

TOUGH SPOT. "Although Amazon has managed to keep its cash and current assets relatively stable, it has done so by increasing its current liabilities throughout the year," Suria writes. This means Amazon has only $386 million in working capital, he adds -- and projected capital expenditures in 2001 of $440 million. "What investors should be more focused on is that working capital [will] turn negative after quarter two," Suria writes. "The company will owe more than it owns on a current basis," which could spur suppliers to demand payment sooner.

That would put Amazon in a tough spot since, with $2 billion in debt, it has a junk-bond credit rating that would inhibit further borrowing. Add it all up, and some experts are starting to say the main character in the new children's book Jeff Bezos: King of Amazon.com, may be an emperor who has no clothes. (Bezos declined to be interviewed for this story. When asked about Bezos' career plans, Amazon spokesman Bill Curry says the company doesn't comment on such matters.)

In fact, many analysts who cover the company are alternatively perplexed and put off by what they view as Bezos' insistence on pursuing a strategy they say hasn't changed enough as the dot-com environment has deteriorated -- and by what they regard as a shortage of in-depth information on the company's finances.

E-FULFILLER? On the strategy front, Bezos has sworn that he's retreating from his plan to "get big fast" no matter what the cost. He's also willing, he says, to be more conservative in branching out from books -- the original franchise, on which Amazon has occasionally produced an operating profit -- into online sales of such things as pet supplies, furniture, and drugs. In fact, Bezos has already dialed back, closing costly distribution operations and waving goodbye instead of throwing life jackets to failing partners such as pets.com and living.com.

At the same time, he has tried to stimulate revenues by hosting consumer sites such as toysrus.com. Amazon could well be more successful as a contractor of e-fulfillment services than as a stand-alone e-tailer, analysts believe -- and Bezos says he's willing to "talk to anyone" about more such deals. Yet, analysts question how willing. For instance, a potential deal with walmart.com seems to have fallen through, though neither company will comment (see BW Online, 3/8/01, "Amazon + Wal-Mart = Win/Win").

Meanwhile, analysts worry that Amazon the retailer continues to concentrate too much on delivering Bezos' promise of "earth's biggest selection" of Web products and services instead of on turning a profit. Amazon "still has too many [different kinds of products] and not enough predictability about what consumers really want," says analyst Lauren Cooks Levitan at Robertson Stephens. Bezos fanned doubts about his true intentions in a CNET Webcast on Feb. 5, in which he said that "over time, you can certainly expect us to enter completely new [product] categories." He followed that up by launching a new online store that sells software via download.

"EXCEPTIONAL." Such moves raise the specter of more distractions for a CEO whose focus on things financial has always been a bit diffuse -- at a time when both Levitan and analyst Mark Rowen at Prudential Securities worry about the health of Amazon's core business. They note, for example, that growth is slowing sharply in the company's strongest division -- books, music, and video -- where combined revenues were up 11% in last year's fourth quarter, vs. 82% a year earlier. Rowen has gone so far as to issue a sell recommendation on Amazon.

It's important to remember that Bezos' strategy has attracted 29 million customers. "What he has done so far is exceptional," says Scott Gordon of executive recruiter Spencer Stuart. Even so, Bezos seems on the verge of undermining confidence in his leadership -- at least among people who influence investors -- by declining to divulge as much as analysts would like about every aspect of his company. Often, he has cited "limited operating history" as a reason Amazon's past performance isn't an indicator of future results and "competitive advantage" as justification for scanty disclosure beyond what federal securities law requires. That makes it hard to tell if the rosy outlook Bezos habitually paints is accurate.

Thus, his justifications for keeping mum are wearing thin as the dot-com meltdown spreads. Since last June, the New York Society of Security Analysts has hosted five forums entitled: "Amazon.com: Responsibility for Investment Information." At each session, a wide variety of financial experts tries to plumb Amazon's numbers and "discern fact from fantasy," says Gary Lutin, the forum's co-sponsor and leader. Initially, the group chose Amazon as a proxy for the New Economy. But it has found the e-tailer's numbers so hard to fathom that the meetings still focus just on Amazon. The company participated in the first four meetings but skipped the latest one, on Feb. 28.

"FINE LINE." So in a Mar. 8 letter to Bezos, Lutin sought more information, including descriptions of Amazon's accounting methods, its contingency plans and strategic alternatives, the information it provides auditors, and its procedures for disclosing information to investors.

Bezos appears to have as many believers as detractors on Wall Street. But, argues one person who attended the group's Feb. 28 meeting: "There's a fine line between creative spin and deliberate deception [in the way the company characterizes its performance and prospects], and it's debatable whether Amazon has crossed it." Amazon's Curry declined to comment on Lutin's letter.

Taken individually, probably none of the criticisms of Bezos is potent enough to lead to his downfall as CEO -- especially given his large stake in Amazon and the support of his tight, friendly board. However, what if the company's financial results and stock continue to suffer -- and what if the chorus of analysts who complain about Amazon's strategy and forthrightness grows? It isn't impossible to imagine that, for the good of Amazon, Bezos might volunteer for another role and bring in someone with broader business experience. It has happened before, to leaders whose companies were healthier. Just ask Tim Koogle. By Stefani Eads in New York


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