Either way, this much anticipated announcement is only the first step in a long marathon for related companies. Scientists and machines must begin to analyze the genome data in order to uncover valuable paydirt that will serve the worlds of both science and business. Therefore, although the sequencing will receive monumental press -- and deservingly so! -- this accomplishment doesn't readily advance humankind by great leaps. This is more like the announcement that the Wright Brothers got their plane off the ground for 12 seconds in 1903. It was decades later before much of the public benefited from flight, too.
That dose of reality injected, biotech is one of the most exciting, Rule Breaking industries in the world, and with this status it offers very exciting investment opportunities for people who don't mind long-term risk and uncertainty. To help you learn how to invest in biotech companies, we'll be chatting live with you about the topic next Monday night in an online chat room. You'll see more details about next week's event at the end of today's column.
Amazon's Failing Competitors
Yesterday, I began to share why I believe that Amazon (Nasdaq: AMZN) is increasingly in a better competitive position with, on most accounts, considerably less uncertainty than in the past.
First, it is widely reported that many of Amazon's young competitors are running low on cash. Unlike the media, however, I see little utility in counting dwindling cash balances and trying to guess when certain companies will disappear. This exercise is somewhat silly because a company's spend rate can change, it may raise more funds, or it may merge with another company, and so forth. Therefore, of much more relevance to me as a long-term investor is to study the actual business practices of -- in this case -- competing young e-commerce companies.
Doing so, I don't spot any competitors that are building an e-commerce service that matches that of Amazon. Most are at least a few generations behind Amazon regarding site technology, distribution warehouses and customer service. And Amazon continues to move ahead, increasing its lead. While lagging young competitors worry about dwindling cash and reaching critical mass (most still don't have enough customers!), Amazon has been able to continue to improve its business across the board.
Given this, even if Buy.com (Nasdaq: BUYX), for example, obtained additional cash to keep it afloat three more years, I do not believe that it could catch Amazon on the most important factors: those of customer service, shopping experience, brand name, and so forth. To me, this advantage is more relevant right now than counting dollars on a balance sheet. Business strategy and the ability to execute and to serve customers is meaningful in a lasting way, while cash balances can always -- theoretically at least -- be replenished.
With that in mind, consider the following list of e-commerce companies. According to analyst Holly Becker, as of May 5, 2000, the following companies had the number of quarters listed below before they may reach profitability, and a very different number of quarters remaining before current cash may run dry. For most, it is not pretty.
Est. Qtrs. Est. Qtrs.
Company Cash Left Until Profitable
eBay (Nasdaq: EBAY) NA Profitable
Priceline (Nasdaq: PCLN) 9 4
Ashford (Nasdaq: ASFD) 3 7
bn.com (Nasdaq: BNBN) 9 9
Amazon (Nasdaq: AMZN) 7 10
PlanetRX (Nasdaq: PLRX) 2 13
drugstore.com (Nasdaq: DSCM) 5 14
buy.com (Nasdaq: BUYX) 5 15
CDNow (Nasdaq: CDNW) 0 Never
Pets.com (Nasdaq: IPET) 2 Never
(*eToys raised more cash this week, perhaps enough to last 9 quarters total.)Notice that every company except Priceline and naturally eBay is currently expected to hit a cash crunch before it could potentially turn profitable. This means that without additional funds many of these companies will never survive to see a profit. However, rather than focus on the estimated quarters remaining before a company runs out of cash, today think about the business models of each company listed above, to the best of your ability, and then ask yourself, "Is this company a Rule Breaker?"
Is Planet RX a Rule Breaker? Is eToys? What about Beyond.com?
I'll argue that none of these companies are (and never were) Rule Breakers except for eBay, Priceline, and Amazon. I will also argue that these three companies -- eBay, Priceline, and Amazon -- are the most likely to survive and could eventually thrive. How is that? Is it a coincidence that these three companies matched the Rule Breaker criteria most closely of any listed?
We'll discuss these things in future columns.
Tomorrow, Paul Commins returns to share part two of his Business-to-Business study. I'll return on Thursday to continue this e-commerce thread with a focus on Amazon, profitability, and trying to debunk some conventional Wisdom.
Fool on!
RB Related Links:
P.S. On Monday, June 26, at 7:00 p.m. ET, David Gardner and Jeff Fischer will host a Rule Breaker chat on Yahoo! focused on biotech investing. The chat will address many of the important aspects that you should consider when investing in biotech companies. For example, what should your strategy be when you invest in biotechs, and how should you think about these companies? So put June 26 on your calendar and join us to discuss biotech in a Yahoo! chat room. (More info on this soon.)
