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Technology Stocks : Amazon.com, Inc. (AMZN)
AMZN 229.55+0.2%Dec 5 9:30 AM EST
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To: H James Morris who wrote (116855)2/2/2001 3:09:44 PM
From: Glenn D. Rudolph  Read Replies (1) of 164684
 
It seems even the bullish analysts do not believe the prejection by management of a profit in Q4 2001. There is a sentiment shift here.

The Branded Internet Update - Lauren Cooks Levitan - lauren@rsco.com
AMAZON PROMISES OPERATING PROFITS IN Q4:01...WE DON'T SEE IT
Amazon.com (AMZN $16.25) reported Q4 revenue of $972.4 million,
up 43.8% year-over-year and just above the preannounced level of
$960 million. Operating EPS of $(0.25) was better than our
estimated loss of $(0.28). We were disappointed by Amazon's
fulfillment costs as a percentage of sales, which at 13% (our
estimate was 12%) calls into question the long-term profitability
potential of the business model. Not surprisingly, management
attempted to spin the results and focus investor attention on its
first publicly disclosed operating profitability target of
Q4:2001. According to our estimates, however, in order to reach
its goal, Amazon would have to grow revenue 40% year over year to
$1.375 billion, on flat to lower marketing expenses. We view this
as a considerable challenge.

Rather than management spin and profitability forecast, we think
investors would be better served by focusing on the critical
issues affecting the economics of Amazon's business model. Our
key takeaways from Amazon's Q4 results: (1) The company has
overbuilt the business relative to the opportunity and now is
cutting 1,300 jobs (or 15% of total staff) and closing a
distribution and customer service center. (2) Growth in Amazon's
core businesses continues to slow to levels even lower than we
expected (books, music and video sales grew just 11% y/y).
Lackluster core growth increases pressure on Amazon's
lower-margin newer categories. (3) The margin potential of new
categories appears to limit the long-term potential of the
business model (we estimate new store gross margins were 8%). (4)
Triple-digit and growing return on invested capital is
mathematically incompatible with tolerance of declining gross and
operating margins.
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