Let me first preface by stating that the cost of fulfillment at Amazon in exceeds gross margins. I have made long and involved posts as to how that will always be the case.
Sorry, I've just started following this thread. I have read similar statements elsewhere, as well. However, a review of AMZN's recent financial statements finds your assertion to be incorrect:
QUARTER ENDED SIX-MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- --------
Net sales..................................... $ 314,377 $115,982 $ 608,019 $203,343
Cost of sales................................. 246,846 89,794 475,696 157,857
--------- -------- --------- --------
Gross profit.................................. 67,531 26,188 132,323 45,486
As you can see, gross margin for the six months '99 is about 21%. I don't have the 99/09 statements in cut-and-paste format, however, the 21% held on YTD revenue of $964M. For the nine months 99/09, gross margin was $203M on sales of $964M.
How is it you have concluded that "cost of fulfillment" (cost of sales) exceeds revenue? This is, quite simply, wrong.
The end result for the 9 months is a net loss of some $400M, which includes $175M in merger & acquisition costs -- including some amortization of intangibles (NONCASH, like depreciation).
Now, here's the important part: The operating expenses for AMZN are not going to be like those of WMT. WMT has a HUGE variable component in its Operating Expenses. But AMZN's, once established, will have only a SMALL variable component. And, in fact, much of that expenditure is already included (e.g., depreciation on facilities which are not fully utilized). The only serious variable component will be the increased personnel for stocking and shipping -- unlike the B & M retailers, where variable operating expense sucks up profit margin at an alarming rate.
I don't know what your "long and involved" posts said, however, it is clear that AMZN not only CAN be profitable, but is quite nearly so.
If the estimates of $750M 4th qtr sales are close, we'll see a net loss for the year of about $420M on sales of $1.7B. On this basis, I estimate break even sales at $3.5B. Now, if you agree with these numbers (and you should), it appears the company will break even this coming year.
Where you went wrong: You're thinking too small. This is NOT a company that's going to do $2B annual sales (its retail, remember -- $2B is nothing). The first time AMZN reports break-even or better, the stockholders will never look back. |
