Moody's rates Amazon.comsnr discount notes
Reuters Story - May 05, 1998 12:46
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(Press release provided by Moody's Investors Service)
NEW YORK, May 5 - Moody's Investors Service assigned a
rating of Caa2 to the $275 million (net proceeds) senior
discount notes due 2008 of Amazon.com, Inc.
The rating outlook is stable.
The rating reflects the uncertainties about the company's
ability to achieve profitability in the near to medium term,
and concerns about its very low gross margin as a result of its
commitment to low prices, its high merchandise costs due to
heavy reliance on sourcing from distributors, and its exclusive
use of credit card sales.
In addition, the rating recognizes a high level of fixed
expenses due to the company's early stage of development, the
high fixed cost of advertising "real estate" on the World Wide
Web, increasing competition both on and off the Internet from
well-capitalized retailers, and the uncertainty of the return
from future investments in capital, new products, or
acquisitions.
The rating also considers the benefits derived from the
company's advantage as the first significant Internet-only
retailer.
These benefits include strong name recognition, its
exclusive rights to attractive advertising "real estate" on
popular World Wide Web sites, and widespread coverage that the
company receives in financial, trade and consumer circles.
All of these benefits have led to explosive sales growth to
over $150 million in annual revenues in less than two years.
The company also has the potential to generate advertising
revenues from its own Web site.
Amazon.com will have extremely high financial leverage
after the note issue, which will require significant growth in
revenues and profitability to eventually service the debt.
The company's ability to achieve these goals is tied to
significant uncertainties, which include the growth of Internet
commerce, competition from on-line and traditional retailers,
taxation and other government regulation, and the company's
ability to improve its operations, among other issues.
Proceeds from the bond notes will be used to repay a $75
million term loan closed in December 1997, and to fund future
operating losses and business development, which could include
acquisitions.
The notes are senior obligations of Amazon.com, Inc., and
are subordinated to existing and potential obligations of
current or future subsidiaries.
The notes will not pay cash interest until 2003.
Amazon.com, Inc., headquartered in Seattle, Washington, is a
retailer of books and music exclusively over the Internet.
The company had revenues of about $148 million in the year
ended December 1997. |
