At a recent meeting of the Churchill Club, where Silicon Valley true believers gather to schmooze and listen to guest speakers, the moderator posed a question to the group: Is Amazon.com, whose stock has ascended from $2 to $62 in the past two years, still worth buying?

The answer was a resounding "no." Only about 15 members of the audience thought the online retailing pioneer's shares would increase in value over the next couple of years. About 200 people said they would go down.

Amazon has always had its skeptics, partly because of its overwhelming ambition. But their questions are becoming increasingly pointed. Why is the average order per customer shrinking? Does the bad publicity the company got for its superspecialized new bestseller lists bode ill for its ultimate plans to use customers' personal data as a way to make money? Why is the number of customers going up so much faster than sales?

And why is the company that made a virtue out of its virtualness -- it didn't order your book from the publisher until after you had paid for it -- now building five new warehouses this year alone?

These are questions that go to the heart of electronic commerce, which in the past year has supposedly moved from novelty to mainstream acceptance. Amazon is the biggest, smartest, most aggressive Web retailer. But its stock peaked at $105 in the spring, shortly before it announced the warehouses and made clear that profits were still a long way away. It hit a low of about $40 early in the summer.

Amazon's shares fell nearly 6 percent, to $62.25, today after Microsoft President Steve Ballmer said, "There is such an overvaluation of technology stocks it is absurd," although he was not speaking about Amazon specifically [Story, Page E1].

Critics point to the company's growing pains -- and those of some of its thousands of imitators -- as evidence of structural problems. They argue it is highly unlikely Amazon will ever be profitable.

Amazon officials and a broad range of Wall Street analysts say it's a mistake to rush to judgment on a company that is attempting to reverse decades of increasingly fragmented retailing.

Yet even the Web retailers that aren't as ambitious as Amazon are faltering. "Most of the online retailers are doing terribly," says hedge-fund manager Eric Von der Porten, who has bought financial instruments known as "puts" on Amazon -- essentially, a bet the stock will fall.

He cites the example of CDnow, until recently the leading music seller. CDnow's sales actually declined from the first quarter to the second quarter. After five years of operation, it consistently has losses nearly equal to its revenues.

Onsale, an online auctioneer and retailer, recently estimated its sales for the third quarter would be a maximum of $91 million. That was a surprise to analysts, whose consensus was $105 million. Onsale is merging with Egghead.com, which used to sell software in stores and now has migrated completely to the Web -- and seen its sales decline every year for the past five years.

"E-commerce growth is starting to slow," says analyst Sara Zeilstra of Warburg Dillon Read. "For one thing, a lot more companies are now fighting for the mind share and wallet share of the Net shopper."

Bill Curry, an Amazon spokesman, dismisses the current criticism of the company. "We're focused on the customer experience as opposed to what hedge-fund managers say," he says, adding that last Christmas was huge, that the first quarter was surprisingly big and that naturally "you can't do that every quarter."

If Amazon is losing some of its luster, it's news to the Wall Street analysts. According to Zacks Investment Research, 12 analysts rate Amazon a "strong buy," while six call it a "moderate buy" and four a hold. None of those surveyed is in favor of selling.

Lise Buyer, an analyst for CS First Boston who is behind one of the buy recommendations, agrees that "there are definitely fundamental signs that things are changing. Revenue growth is pretty slow. Is there a plausible explanation? Possibly. Should we ignore it? Absolutely not."

The real trouble, she believes, is expectations, not reality. "This is a company that will generate $1.5 billion in sales this year from selling relatively low-ticket items. Four years ago it did $500,000. It's still a head-turner in terms of growth. But those who assumed that all commerce will migrate to the Web were overly futuristic. This is not a straight-slope trajectory that only goes up."

New customers still flock to the site: Amazon added 2.3 million of them during the quarter, a rise of 27 percent, for a cumulative total of 10.7 million.

Sales are another matter. In a development that remained largely unnoticed until hedge-fund manager Jeff Matthews spelled it out in the online financial news service TheStreet.com, Amazon's sales in the second quarter were only 7 percent greater than they were in the first.

When Matthews eliminated the company's international sales and new auction service, he estimated that the "apples-to-apples" comparison of Amazon's U.S. book, music and video business grew only about 4 percent from the first quarter to the second.

That means, he points out, that Amazon did only twice as well as Barnes & Noble's much-derided "bricks and mortar" bookstores, which grew 2 percent. And that it drastically underperformed the stodgy Sears, Roebuck & Co., which grew 13 percent in the same period.

There are other perils undreamed of until recently. Amazon has just started selling high-ticket electronics items like VCRs and cameras, which may boost its revenues in the quarter ending next week as much as 15 percent over the second quarter.

But this area, even more than books, is vulnerable to price cutting -- especially from Web sites that hold "reverse auctions" for goods. The more people who sign up to buy a certain item, the further the manufacturer agrees to drop the price.

Von der Porten, who runs Leeward Investments in Silicon Valley, sees Amazon faltering from a different perspective. By crunching various numbers on the company's financial statements, he's concluded that revenue per customer is trending downward.

Except for spikes during the Christmas holidays, the number has fallen steadily from $47.07 in the first quarter of 1997 to $29.26 in the second quarter of this year. What's the use of Amazon having those millions of customers in its database if they only rarely buy things?

Hedge-fund manager Matthews, who runs Ram Partners in Greenwich, Conn., argues that Amazon is experiencing the same dramatic fall-off of any hot new retail concept. Matthews is shorting Amazon stock, another way to profit if the share price declines.

"The difference is, those hot new retail concepts -- like, say, Gap or Limited or Abercrombie or Toys R Us or Home Depot or Price Club or Pacific Sunwear -- can keep opening new stores in new territories to keep up their growth," he says. "Amazon, however, only had to open one `store' on the Internet, giving them instant worldwide customer access. They had that massive customer acceptance that usually takes a decade for a new bricks-and-mortar chain to reach, and they had it nearly instantaneously."

In other words, he says, Amazon "saturated its market in `Internet time.' "

Amazon's market capitalization -- the number of shares outstanding times the price per share -- is $21 billion. That's five times what it was a year ago, when a Merrill Lynch & Co. analyst wrote that Amazon would lose only $88 million in 1999 and be well on its way to profitability. Instead, it will likely lose three times that, with profitability nowhere in sight.

Amazon chief executive Jeff Bezos wasn't available for comment, but he's said many times that "it would be a mistake to be profitable now."

He told the magazine Business 2.0 earlier this year that he didn't want to give anyone the impression he didn't care about profitability. But he added that "it would be a mistake to optimize for profitability in the short term, because that would mean you weren't investing aggressively enough in the things that were working and the things that we really, really believe in."

What Amazon is investing in is pleasing its customers. It has to. You can get many of its products cheaper elsewhere on the Web. You can probably get them delivered just as quickly, too. But you can't get so many things at once from one place except Amazon, and the company hopes you'll have such an easy, pleasant time that you'll become devoted.

"What they're doing is very useful in terms of building a relationship with the customer," says analyst Zeilstra. "Amazon will control the experience from the time you click on the Web site until it shows up at your door. But its stock price doesn't take into account how much that's going to cost."

Accordingly, she says, "I wouldn't say the company's never going to make money, but it's too early to tell when it might."

Meanwhile, Amazon is reportedly in talks with Home Depot, although how a partnership would work with the home-improvement chain -- which has its own separate online plans -- isn't clear. But whether or not this deal makes it, analysts expect more such hybrid "clicks and mortar" strategies.

"There will be a lot more crossover, with online companies needing some stake in the real world to survive," says Carrie Ardito of Forrester Research. "There's a blurring. Soon you'll think of companies as just retailers, not as specifically an online or traditional one."

CAPTION: AMAZON'S COURSE (This graphic was not available)