Analyst's Latest Prediction - AMZN will trade to its all time high of
$199 IN COMING DAYS !!!!
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o We believe the stock will trade up on upward revisions to 1999 revenue
estimates, and that it may test it's previous high of $199 per share over
the coming days.
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11:07am EST 27-Jan-99 Montgomery Securities (S. Horen 415 913-5961) AMZN
AMZN: 4Q98 Results In-line With Pre-Announced EPS of ($0.20).
NATIONSBANC MONTGOMERY***NATIONSBANC MONTGOMERY***NATIONSBANC MONTGOMERY
AMAZON.COM, INC. RATING: BUY
January 27, 1999 INTERNET SERVICES NASDAQ: AMZN
Steven R. Horen (415) 913-5961; shoren@montgomery.com First Call
Matthew W. Finick (415) 627-296; mfinick@montgomery.com DJIA:9325
S&P 500:1252
NMSGI:150
Price (Close on 1/26/99): $115 3/32 FY Ends 12/31 1997A 1998A 1999E
52-Week Range: $199-9
Shares Outstanding: 160.7 MM Q1 (Mar) ($0.03) ($0.07) ($0.43)
Market Capitalization: $18,494 MM Q2 (Jun) (0.06) (0.15) (0.41)
Avg. Daily Vol. (3 mos.): 16,407,370 Q3 (Sep) (0.07) (0.30) (0.36)
Secular EPS Growth: 50% Q4 (Dec) (0.08) (0.30)A (0.28)
1999E Sales: $1,296.7 MM Fiscal Year ($0.24) ($0.83) ($1.49)
Market Cap./Sales: 14.3x P/E NM NM NM
9/98 Total Debt: $340.4 MM P/E/G NM NM NM
9/98 LTD/Total Cap.: 65% Previous EPS ($0.87) ($1.20)
9/98 ROAE: NM
9/98 Shareholders' Eq.: $179.8 MM Adjusted Earnings 1 ($0.24) ($0.50)
($0.92)
9/98 Book Value/Share: $1.12 Previous Adjusted Earnings 1
($0.55) ($0.62)
Dividend/Yield: None
(1) Adjusted earnings exclude
amortization of
intangibles/goodwill.
* NationsBanc Montgomery Securities LLC currently maintains a market in this
security.
4Q98 Results In-Line With Pre-Announced EPS of ($0.20). Increasing Our
1999 Revenue and Loss Per Share Estimates to $1.29 Billion and $0.92,
Respectively
o Amazon.com reported 4Q98 operating per-share loss of $0.14, which was
slightly better than the pre-announced operating loss of $0.20 and our
original operating loss estimate of $0.20. The reported per-share loss of
$0.30 included $24.2 million of merger-related charges.
o Revenues of $252.9 million were 35% above our $187.0 million estimate
(up 65% sequentially), which was driven by: (i) strong holiday shopping
sales, (ii) the launch of the expanded gift center in mid-November with new
merchandise categories (consumer electronics, software and toys) and (iii)
the launch of the video store in mid-November.
o We are increasing our 1999 revenue and loss per share estimates to
reflect: (i) continued strength in revenue growth, (ii) increased
technology development spending to support anticipated higher transaction
volumes, and (iii) increased operations spending to reflect the
establishment of two new automated distribution centers during 1999. HI
Underlying fundamentals were extremely strong: Amazon added 1.7
million new customers during the quarter, while maintaining repeat
purchase levels at 64%. We estimate that customer acquisition cost fell
for the second consecutive quarter from the $10-12 range to $8-10.
o We believe the stock will trade up on upward revisions to 1999 revenue
estimates, and that it may test it's previous high of $199 per share over
the coming days.
We have increased our 1999 revenue and operating expenses to: (i)
support expansion into international markets; (ii) the aggressive
implementation of automation in new distribution facilities in Nevada, and
another location expected during 1999. As a result of the above-mentioned
strategic initiatives, we have increased our 1999 revenue, Sales & Marketing,
and Development expense estimates to $1.29 billion (from $938.3 million), to
$242.8 million (from $200.0 million) and to $139.5 million (from $67.7
million), respectively. As a result, our 1999 estimated operating loss
increases from $77.1 million to $117.4 million, and estimated loss per share
increases from $0.62 to $0.92. It is interesting to note the AMZN will begin
to focus more heavily on 'gross profit per transaction' than on gross margin
percentages, per se, as it adds certain high ticket gift items with lower gross
margins, but which increase gross profit dollars per transaction.
Discussion of 4Q98 Results
Summary of 4Q98 Results
($ 000s)
4Q98A 4Q97A % Change 4Q98E Variance
Total Revenues $252,893 $66,040 283% $187,030 35%
Gross Profit 53,417 12,913 314% 42,082 27%
Operating Expenses 71,239 24,237 194% 68,600 4%
Operating Income (42,069) (11,324) NM (48,518) NM
(Loss)
Net Income (Loss) (46,427) (10,808) NM (52,518) NM
Net Income (Loss) - (22,180) (10,808) NM (30,518) NM
Adjusted
EPS ($0.30) ($0.08) NM ($0.34) NM
EPS - Adjusted ($0.14) ($0.08) NM ($0.20) NM
Adjusted 4Q98 Net income and EPS exclude merger-related charges of $24.2
million.
Fourth quarter revenue growth was fueled by strong underlying metrics.
Revenues of $252.9 million were 35% above our $187.0 million estimate. These
solid results were driven by strong customer acquisition and repeat buying
trends. Amazon acquired 1.7 million new customers in the quarter, bringing the
cumulative customers to 6.2 million, which was significantly above our 5.8
million estimate. Approximately 64% of orders were from repeat customers,
versus 64% in the prior quarter, and roughly 19% of sales were derived from
international markets (versus 21% in 3Q98). Sales of music merchandise totaled
$33.1 million in the quarter, which was up from $14.4 million in 3Q98 and is
indicative of the power of leveraging the existing customer base to cross-sell
new merchandise.
Gross margins were below expectations due to both the shift in mix to
include music and video products (about half of the 1.6% decrease) and holiday
promotions that were used as customer acquisition devices. The gross margin
was 21.1%, which was slightly below our 22.5% estimate. Management stated that
this downward variance resulted from: (i) stronger sales of music and videos
that have lower margins, (ii) aggressive pricing in certain merchandise (DVD
and the gift center) to drive growth, (iii) giving holiday customers 'free'
shipping upgrades to ensure merchandise arrived before Christmas. As management
has stated in the past, gross margins may fluctuate +/- 100 basis points based
on the ramp of new merchandise categories that may have lower margins than
books.
Operating expenses were slightly above our estimates. Operating
expenses of $71.3 million were 4% above our $68.6 million estimate, driven by
variances in sales & marketing (+$1.5 million) and product development (+$1.1
million). These upward variances resulted as Amazon: (i) promoted the Amazon
brand through both traditional and online media; (ii) launched the video store
and expanded gift center; (iii) expanded distribution into international
markets; and (iv) added a new distribution center. Headcount increased by over
500 sequentially to 2,100 (up from 1,600 in 3Q98) to support the developmental
activities, the international expansion and an expansion of the distribution
facilities to handle new merchandise and higher shipping volumes.
Other miscellaneous expenses. Merger-related amortization of
intangibles/goodwill was $24.2 million, which was slightly above our $22.0
million estimate. These costs relate to the amortization of the five
acquisitions completed in 3Q (Bookpages, Telebook, Internet Movie Database,
PlanetAll and Junglee). Net interest expense of $4.4 million was slightly above
our $4.0 million estimate.
Summary of Changes to Our 1999 Model
1999 model changes. We have increased revenues by $358.5 million (plus
38%) and operating expenses by $114.7 million. The allocation of our operating
expense increases was: marketing & sales +$42.8 million and product development
+$71.9 million. We have also increased our interest expense assumption from
$19.0 million to $28.4 million. These changes result in a $0.30 increase to our
operating per-share loss estimate to $0.92. Our reported loss estimate
increases by $0.29 to $1.49.
1999
New Old
Gross Sales $1,296,730 $938,266 38%
Gross Profit 289,056 214,742 35%
Gross Margin 22.3% 22.9% -3%
Expenses:
Marketing and 242,800 200,000 21%
sales
Product 139,500 67,650 106%
Development
General & 24,200 24,200 0%
Administrative
Operating Inc. ($117,444) ($77,108) NM
(Loss): ADJ.
Net Income (Loss): ($145,844) ($96,108) NM
ADJ
EPS: ADJUSTED ($0.92) ($0.62) NM
Shares Outstanding 158,750 155,350 2%
Adjusted numbers exclude merger and acquisition-
related costs of $90.0 million.
Update on the WalMart Law Suit: WalMart had originally filed suit
against Amazon, Drugstore.Com and Kleiner Perkins in both the Arkansas and
Washington State courts. The case was dismissed in Arkansas on grounds that
the state had no jurisdiction over certain individuals named in the suit, nor
DrugStore.com.
Amazon.com is the leading online retailer of books, offering over 2.5
million titles plus CDs, videotapes and audiotapes. Amazon.com offers
customers value through aggregating the largest selection of books at
competitive prices, with an easy to use search function that enables customers
to quickly find and order books through a seamless interface.
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