I guess it's time to get some numbers on how AMZN is doing
in the book business. The reason for wondering about this
is to get a handle on some sort of equivalent of same store
sales. For each new business that AMZN starts, they will
have to purchase and pay for infrastructure. So it would
be nice to take a look at just one e-business, the oldest
one.
Books were the first business AMZN got into, and it was chosen
very carefully. Bezos has said that he looked over a lot of
possible things to sell over the net, but books was the best.
So if the book business is coming unglued, you know that this
company is in deep, deep trouble. Unfortunately, AMZN doesn't
break out its sales by division. My suggestion is that this
is done in order to fool investors into imagining results better
than actually exist. Hope springs eternal in the human breast.
To make this calculation, I will have to get AMZN's book sales
for 1998, and AMZN's book sales for 1999. In order to do this,
I will have to make a bunch of assumptions, but I believe that
they are all reasonable.
(1) ESTIMATE AMZN'S BOOK SALES FOR 2Q98.
In 2Q98, AMZN sold books and music. At that quarter's press
release, they claimed to be the leading internet seller of CDs.
They had begun selling music in June 1998, so they need have
had only one quarter of sales greater than that of CDNW in
order to achieve that claim. CDNW sold $11.6MM that quarter,
so AMZN must have sold more than $3.9MM in music the same
quarter. AMZN's total sales figure for the quarter was
$116.044MM, so their book sales must have been around $112MM.
Reference CDNW revenue for 2Q98:
The Company's net sales grew to $11.6 million in the second
quarter of 1998
biz.yahoo.com
Reference AMZN revenue, back to 1996:
tscn.com
(2) ESTIMATE AMZN'S BOOK SALES FOR 2Q99.
Amazon's overall sales grew 171% for 2Q99 over 2Q98. Music
presumably grew by a faster rate, and, in addition, was sold
for all three months rather than just one. Consequently, my
estimate for music sales in 2Q99 is $3.9MM * 3 * (1.0 + 1.71)
= 31.7MM. In addition, AMZN claimed to be selling more music
and video than anyone else on the net:
Amazon.com, Inc., the Internet's No. 1 music, No. 1 video,
and No. 1 book retailer
biz.yahoo.com
Since CDNW reported sales of $34MM, AMZN's sales were presumably
larger, say $35MM. In any case, my estimates are clearly on
track. Note that the following press release came out 9 days
before the above AMZN press release, and had to have been read
by Bezos when he made his No. 1 PR above:
The company, which recently merged with rival N2K, also sees
revenues for the quarter at about $34.5 million to $35 million,
but noted that revenues were restricted as it focused on integrating
its online store with N2K's Music Boulevard.
In last year's second quarter, the company reported a loss of $0.55
a share, on sales of $11.6 million.
biz.yahoo.com
biz.yahoo.com
The second leading video etailer, REEL got bought by HLYW last
year, and is reported in their figures. They may be going back
public soon, rumor has it. Video sales for the second quarter
were $5.9MM on-line:
Revenue was also favorably impacted by an increase of 18% in
comparable store revenue in the current year first quarter and
the purchase of Reel.com in October 1998, which added $6.4 million
in revenue (of which $5.9 million was on-line revenue).
biz.yahoo.com
Thus AMZN's video sales have to be in excess of $5.9MM, say $6.0MM.
Given at least $35MM of music sales, and at least $6MM of video
sales, AMZN's book sales were therefore at most
$314MM - $6MM - $35MM = $273MM.
(3) POSSIBLE ERRORS.
Assuming the company PRs are true, and it is known that AMZN
watches its competitors carefully, errors in the above calculations
will show that either:
(a) The music business is growing more slowly than the book
business, which says horrible things for AMZN's ability to
move into another market niche;
(b) or the core book business is growing even slower than
calculated.
My guess is that (b) is the case.
(4) AMAZON'S BOOK SALES GROWTH RATE.
From the above, it works out that Amazon's book sales increased
at most only about 144% over the previous year. This is considerably
lower than the overall revenue increase of 171%. This is the
same store figure that would be of interest to almost all analysts.
Note that my numbers are very likely an overestimate of the growth
rate.
Before 2Q98, AMZN's business included only books. The growth rates,
year over year, for same quarters that inclduded only book sales were
446% or higher. To have book sales growing at such a small rate now
is quite a reduction.
(5) AMAZON VS. BNBN
BarnesAndNoble.com only sells books, so we can now compare the growth
rates of the two companies, in terms of books only. We can now also
estimate their relative market shares. In particular, in 2Q99, BNBN
sold $39MM, to AMZN's $273MM. The ratio is therefore about 7. I
believe that the market ratio between the two companies, in books,
was always in double digits during 1998. BNBN is picking up market
share at the expense of AMZN. This trend will probably continue,
nor is BNBN the only book seller probably picking up market share.
Walmart recently signed an agreement with BAMM to sell books, for
instance.
I here repeat my extrapolations for total AMZN sales:
AMZN Growth Rates 3Q99 &c. extrapolated:
Yearly Growth
Date Revenue Increase Change Lossage
---- -------- -------- ------ -------
Q96 875
2Q96 2230
3Q96 4173
4Q96 8468
1Q97 16005 1729%
2Q97 27855 1150% -579% -33%
3Q97 37887 808% -342% -30%
4Q97 66040 680% -128% -16%
1Q98 87361 446% -234% -34%
2Q98 116044 317% -129% -29%
3Q98 153698 306% -11% -3%
4Q98 252893 283% -23% -8%
1Q99 293643 236% -47% -17%
2Q99 314377 171% -65% -28%
3Q99 356579 132% -39% -23%
4Q99 508314 101% -31% -23%
1Q00 522684 78% -23% -23%
2Q00 503003 60% -18% -23%
3Q00 520605 46% -14% -23%
4Q00 705623 35% -11% -23%
The corresponding extrapolation for BNBN is as follows. Note that
BNBN is growing faster than AMZN, and that its most recent 2 quarters
growth lossage is much less than AMZN's. In fact, the two company's
results mirror each other. One might suppose AMZN advertising
briefly flipped things around during the third and fourth quarters,
and that during the last two quarters things have returned around.
Since I have to pick an arbitrary Growth Lossage in order to
extrapolate into the future, I will use the average of the loss over
the most recent three quarters: -13%.
BNBN Growth Rates 3Q99 &c. extrapolated:
Yearly Growth
Date Revenue Increase Change Lossage
---- -------- -------- ------ -------
1Q97 44
2Q97 1593
3Q97 3252
4Q97 7060
1Q98 9013 NM
2Q98 11380 614%
3Q98 15561 379% -235% -38%
4Q98 25880 267% -112% -30%
1Q99 32317 259% -8% -3%
2Q99 39065 243% -16% -6%
3Q99E 48394 211% -32% -13%
4Q99E 73499 184% -27% -13%
1Q00E 84024 160% -24% -13%
2Q00E 93365 139% -21% -13%
3Q00E 106952 121% -18% -13%
4Q00E 150673 105% -16% -13%
BNBN Revenue figures are from:
tscn.com
My estimates for the third and fourth quarters are no doubt
underestimates, unless AMZN spends a lot of money on advertising
again. In any case, I see the ratio between the two company's
on-line book sales drifting into the 3 to 1 range by 4Q00. It is
pretty easy to suspect that BNBN will eventually overtake AMZN in
this area.
-- Carl |
