, Falter

FRAMINGHAM (08/04/2000) - Wall Street hit Inc. (Nasdaq:AMZN) and Inc. (Nasdaq:BNBN) with a healthy dose of reality this week after the online retailers failed to meet analysts' expectations.

"The rapid growth of business-to-consumer e-commerce is somewhat in question," says Dan Ries, an analyst at C. E. Unterberg, Towbin (CEUT) in New York. Online retailers battle for business with aggressively low prices, which lead to continued losses, he says.

Amazon's stock price fell from $36.06 per share to $31.38 July 27 following its report of an $89 million operating loss for the second quarter. The operating loss widened from $67 million during the same quarter last year.

Revenue rose to $577.8 million from $314 million in the year-ago quarter. shares fell from $5.13 to $4.16 following its report that operating losses had doubled during the second quarter, to $51.7 million from $25 million for the same period last year. Sales totaled $67.4 million, up from $38.1 million a year earlier, but analysts expected second-quarter sales to be in the mid-to-high $70 million range.

Financial firms downgraded ratings on both companies' shares. Banc of America Securities LLC changed its recommendation for Amazon stock from Buy to Market Performer because the growth rate of Amazon's core business - books, music and video - won't be able to support the company's current value, a Banc of America Securities report said.

The firm also dropped from Buy to Market Performer due to the "slowdown in top-line growth despite increased spending," according to the report.

CEUT still calls Amazon a Buy, but the company doesn't even rate because "it will always be the No. 2 bookseller in the market," Ries says.

However, Alan Alper, an analyst at Gomez Advisors Inc. in Lincoln, Mass., says Amazon's name recognition and loyal customers may make it profitable. may also have a good chance, especially if shareholder Bertelsmann AG buys CDnow Inc. (Nasdaq:CDNW) and integrates those offerings with's, Alper says.

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