Amazon.stratosphere

Full disclosure: I’m short a few shares of amazon.com, the online bookstore. This should be an encouragement to those of you who own it, because stocks almost invariably rise strongly after I short them. Then I short more, and one of two things happens: I’m finally right, and break even, covering too soon on the way down. Or else I’m not right, and wind up with a spectacular tax loss.

(For the mechanics of shorting, click here. For the terror of a short squeeze, click here.)

Amazon.com is a fantastic company, and I am probably one of its 100 biggest customers. I’ve spent literally thousands of dollars buying books from Amazon.com, and I recognize that, if they play their cards right, I might one day buy CDs and videos and who knows what else from them — batteries, office supplies, groceries. I trust them, they’re reliable, and although — as an author — I owe an enormous debt of gratitude to Barnes and Noble, and lesser debts to Borders and all the rest, I still find myself clicking www.amazon.com when I need something, because they were there first. And I remember my password. And I’ve just gotten used to it.

(I’ve bought books with equal success from www.barnesandnoble.com, and have discovered www.powells.com for used and out-of-print volumes.)

But looky-here, Slim: AMZN is divided into around 25 million shares selling for nearly $95 each — $2.3 billion in all last I checked a few days ago. It’s been in business five minutes, has small sales, no profits, and some giant competitors on its trail.

Of course, this could have been said of Compaq a dozen or so years ago, more or less, so there really is the possibility that Amazon.com, even at this $2.3 billion market valuation, will ultimately prove cheap.

But if Amazon.com is worth $2.3 billion, what is Random House worth?

Random House is the largest publisher of English-language trade books in the world. (The term trade books includes everything, basically, except textbooks and technical books.) Among the other book brands in its stable are Ballantine, Crown, Pantheon, Knopf, Fodors, Vintage, the Modern Library and Clarkson Potter. It owns the rights to a tremendous amount of software; namely, books. It’s built relationships with bookstores and authors for nearly 75 years.

And as you may have read, its owner, the Newhouse family, recently agreed to sell Random House to a German publishing powerhouse for $1.4 billion.

So Amazon.com is selling for 65% more than the largest publisher of English-language trade books in the world.

Was Random House losing money? I don’t think so. Was the Newhouse family hurting? You’ve got to be kidding. In other words, this was no desperation sale. One presumes that $1.4 billion was a fairly full price.

Yet there are those on Wall Street — specifically, some owners of AMZN — who think Amazon.com is worth more than Random House. (Other owners don’t think about it either way. They just think it’s a neat company; and they know it’s a neat stock, because it goes up.) They could be right. And Auto-By-Tel could one day be worth more than General Motors.