09:08am EST 24-Nov-99 C.E. Unterberg, Towbin (Dan Ries 212-572-8046) AMZN
AMZN:Upgrading to Buy based on early quarter momentum and new products
Dan Ries (212) 572-8046 dries@unterberg.com
Van Truong (212) 572-8168 vtruong@unterberg.com
Amazon.com (AMZN - $81 3/4 Buy) November 24, 1999
Upgrading to Buy based on early quarter momentum and new products
52 Week Range $110 5/8 - $20 1/8
Fully Diluted (MM) 332.5
Float 191.7
% Held Institutionally 24.6%
Market Capitalization (MM) $27,182
Revenues - LTM (MM) $1,217
Book Value Per Share $1.26
Total Debt (MM) $1,463
Cash Per Share $2.72
Long Term Growth Rate 60%
Fiscal Year Ends December 1998A 1999E 2000E
Revenue (MM) $610 $1,518 $2,519
Previous - - -
EPS Q1 $(0.03) $(0.12)A $(0.33)
Q2 $(0.05) $(0.26)A $(0.30)
Q3 $(0.08) $(0.26)A $(0.25)
Q4 $(0.07) $(0.45) $(0.22)
Year $(0.25) $(1.10) $(1.10)
P/E NMF NMF NMF
Shares Fully Diluted 296.3 326.0 346.0
Company Overview
Amazon.com is the world's largest eCommerce retailer, or etailer for short,
holding the leading share of the online markets for books, music and
videos. The company has recently expanded its product offerings to include
toys, games, consumer electronics, software, video games, and home
improvement products. The company also enables others to sell products
through its site, either in an auction-pricing format, or a fixed-price
format in its recently launched zShops initiative.
Key Points:
**Record one day sales level of $6 million on November 16 indicates that 4Q
is off to a strong start
**New products lines introduced earlier in the month explain the
deterioration expected in operating margins this quarter, explaining one of
the reasons for our earlier downgrade
**Upgrading Amazon to Buy and establishing a $100 12-month price target.
Amazon announced yesterday that it had achieved a record day of sales on
November 16, surpassing its peak day of mid-December 1998, which brought in
revenues of approximately $6 million. This record day performance was
stimulated in part by the launch of Amazon's coupon initiative in early
November, as well as by seasonal factors from the early shoppers of this
holiday season.
This record performance enhances our outlook for Amazon's revenue in the
present quarter, leading us to believe that the company now has a greater
likelihood of outperforming our $555 million revenue forecast. In last
year's December quarter, we believe that Amazon's daily sales rate
approximately doubled from mid-November to mid-December. With this year's
product lines including the toys, which are heavily skewed toward December
sales, we believe a similar daily sales pattern is likely.
Assuming a conservative scenario, that the average day in the fourth
quarter generates the $6 million sales rate of November 16, an unlikely
scenario, revenues for the quarter would come in at $540 million, just
below our forecast. However, we suspect that its sales rate of November 16
will likely come below the average daily sales rate for the quarter, since
we find it unlikely that a Tuesday in mid-November will be equal a consumer-
oriented retailers average sales rate in the holiday season. We expected
Amazon's business to pick up significantly in the traditional holiday
buying period running from Thanksgiving to Christmas, and for this surge to
pull its average daily sales rate to a higher level. As a result, we now
believe our estimate of $555 million is perhaps on the light side, and
believe that if current momentum continues during the month of December, a
revenue figure above $600 million is possible.
In addition to this news, NetRatings' weekly traffic data has indicated
strong momentum at Amazon, with weekly page views having risen on a
sequential week-to-week basis by 12% and 24% for the weeks ending November
7 and November 14, respectively. In addition, NetRatings analysis show
that Amazon's sales conversion rate improved by 130 basis points in the
month of October, to nearly 10% (this metric is based on the percentage
unique visits that result in a sale).
Upgrading to Buy
Following Amazon's 3Q99 earnings release, we had downgraded the stock to
Long-term Buy from Buy, based on the company's guidance for lower gross
margins and increased sales and marketing expense for 4Q99. At the time,
we believed the magnitude of the losses the company was describing was too
great to have been attributable to its existing product portfolio, even
considering that toys and consumer electronics were early stage products
and therefore operating sub-optimally. With Amazon's subsequent
announcement of three new product groups - video games, software and home
improvement products - the margin and spending guidance has been put into
perspective and now seems reasonable given its greater skew toward early-
stage product lines.
Given the our belief that the fourth quarter is presently tracking to a
level above our forecast, and the greater insight into the cause of its
expected operating margin deterioration, we are upgrading Amazon from Long-
Term Buy to Buy and establishing a $100 12-month price target. Should the
company in fact deliver a quarter with revenues above $600 million, we
believe this price target will be eclipsed in the near-term. We will
monitor weekly traffic data closely in the weeks ahead to see if Amazon's
momentum continues to grow.
As you may be aware, CEUT instituted a new rating system on November 22,
eliminating Long-Term Buy. Given the timing of this upgrade, we want to be
clear that we are upgrading the stock due to its momentum and its new
product lines, and not merely making the change to fit our new rating
system. |
