>because he might be running from an angry mob in seattle pretty soon..
Why do you think most of the Amzn insiders who made the real big $bucks have left Seattle already?
>Washington, Aug. 3 (Bloomberg) -- Amazon.com Inc. disclosed that the bulk of the revenue from one of its most profitable business programs is being paid in the form of stock issued by troubled Internet partners.
The payments from this program, known as the Amazon Commerce Network, come from online retailers such as drugstore.com Inc. in exchange for co-branded selling space on Amazon.com's Web site. The program accounted for almost all of Amazon.com's growth in second quarter gross profit margins, a key measure of sales profitability, when compared to last year.
However, the Seattle-based company said in a quarterly report released yesterday that the $24.3 million received from Amazon Commerce partners during the second quarter included just $4.2 million in cash. That led at least one analyst to question the quality of earnings that Amazon.com is reporting.
``A number of investors were assuming that the revenues they are recording'' from the Amazon Commerce Network ``are cash revenues,'' said Gregory Konezny, an analyst at U.S. Bancorp Piper Jaffray. ``The complexion of that has changed significantly to much less cash and more equity.''
Amazon.com shares have dropped more than 58 percent this year, in part because investors are worried the company will run out of cash unless it begins to generate more money than it uses to fund operations. Amazon.com has said it will generate positive cash flow from operations during the second half of this year, adding that the amounts in company coffers -- about $900 million when the second quarter ended -- are more than adequate.
Gross Profits
The network payments accounted for less than 5 percent of the $578 million of net sales that Amazon.com recorded during the second quarter. However, Amazon.com realized gross profits of $23.6 million from the $24.3 million in commerce network payments, representing a gross margin of 97 percent. Gross profits are sales less the cost of sales, such as the cost of merchandise sold to customers and shipping expenses.
``If you were to take these revenues out,'' Amazon.com's overall operating loss ``would go up quite a bit because these are very high margin revenue streams they are recognizing,'' Konezny said.
Troubles among the retailers who participate in the commerce network could complicate Amazon.com's effort to improve future profitability. However, an Amazon.com spokesman said the company will still reach its goals.
``We are driving toward profitability in every business we are in in the absence of the benefit of the commerce network,'' said Tim Stone, Amazon.com's director of investor relations.
Network Partners
Amazon.com announced its first big commerce network agreement with Ashford.com Inc. during the second half of last year and now has 15 partners in the program, including drugstore.com, HomeGrocer.com and Pets.com Inc. Amazon.com has purchased stock in many of the network partners, who benefit from their participation in the program through access to Amazon.com's customer base and e- commerce expertise as well as affiliation with its brand name.
The problem is that the public companies that are issuing stock to Amazon.com as payment under the program have seen their share prices decline in recent months. Drugstore.com is down almost 85 percent this year, while Pets.com has dropped 89 percent from its February IPO price and HomeGrocer.com has fallen 57 percent from its March IPO.
While the value of the shares received by Amazon.com as payment has declined, the company isn't allowed to adjust the revenue booked from these agreements. Accounting rules require Amazon.com to determine the value of stock to be received as payment at the beginning of the agreement and use that figure going forward, even if the market value of the shares fluctuates.
Most retailers in the commerce network are losing money. Amazon.com said its share of these losses, measured according to the size of the stake it has taken in each online partner, totaled $198 million during the first half of this year.
Perhaps as a result, some of the partners are now revamping their agreements with Amazon.com by asking the company to accept more stock and less cash under the fixed portion of these arrangements, according to the quarterly report filed with the Securities and Exchange Commission.
Amazon.com in some cases is adding a performance-based element to the agreements that would provide the company with additional cash payments, based, for example, on the number of customers referred to a partner.
Aug/03/2000 18:40 ET |
