Interesting extract of article from Bloomberg - Dec 5, 1997
BN 12/5 Amazon.com Asks Investors to Read the Future: Company Spotlight
Amazon.com Asks Investors to Read the Future: Company Spotlight
Seattle, Dec. 5 (Bloomberg) -- Amazon.com Inc., the online
book retailer that calls itself the Earth's Biggest Bookstore,
shows that the word ''Internet'' works wonders.
Named after the Amazon River, the Seattle-based company
expects millions of consumers to scan its online catalog of 2.5
million titles and make purchases from home with the click of a
computer mouse. That's why Amazon's stock was one of the hottest
initial public offerings of the year, rising threefold since May.
Investors who see nowhere for the stock to go but up may
want to think again. There's scant evidence that droves of people
want to buy books online -- and if they do, money-losing Amazon
may not be the service they use.
''Most people won't give up on bookstores,'' said Giovanni
Zocche, a software consultant at Bora Ventures.
What's more, if online book buying takes off, Amazon's
advantage of being first could quickly disappear as bigger,
better-financed book retailers muscle their way into Internet
selling.
Barnes & Noble Inc. is beefing up its online site, which
opened in May, and Borders Group Inc. plans to open its site for
business in January. The two retailers lead the $25 billion U.S.
book-selling industry with their chains of supermarket-size
stores.
''There's already a battle,'' said Hambrecht & Quist LLC
analyst Genni Combes, who has a ''buy'' recommendation on Amazon.
Not Shy
While Amazon executives won't say when or if the company
ever will make money, Barnes & Noble isn't shy about discussing
its online service. The New York-based company expects sales of
$100 million to $125 million in 1998 and turn a profit in 1999,
said Chief Operating Officer Stephen Riggio.
''With Barnes & Noble's nameplate, they'll be able to gain
at least as much market share as Amazon,'' said Blackford
Securities analyst Jason Klein, who rates Barnes & Noble a
''buy.''
There's no arguing with Amazon fans on one point: The stock
is the equivalent of a bestseller. Since going public at $18 in
May in a $54 million IPO, the shares have soared and recently
trade at about 54. The stock closed at a high of 66 on Oct. 29.
At recent prices, Amazon has a market value of about $1.29
billion. Not bad for a company with $90 million in sales in the
past four quarters. Compare that with Barnes & Noble, with a
market value of $2.2 billion and sales of $2.71 billion -- and a
profit to boot.
Selling More, Losing More
Started in 1994 by former Wall Street money manager Jeffrey
Bezos, Amazon's plan is to boost sales rapidly, helping it cover
fixed costs. Then, once sales are high enough, demand the same
discounts its bigger rivals get from publishers.
''It's a scale business,'' said Amazon Chief Financial
Officer Joy Covey.
Yet, the company's losses are expected to widen as its sales
increase, mainly because of high sales and marketing costs.
Indeed, third-quarter sales shot to $37.9 million from $4.2
million a year earlier, yet its loss more than tripled to $8.5
million from $2.4 million.
Oddly enough, Amazon has higher overhead costs than its
rivals, which must pay for hundreds of stores, vast inventories
and thousands of workers. Amazon has about 19 cents left from
each $1 in sales, while Barnes & Noble holds onto about 35 cents
and Borders keeps about 25.
Story Telling
Many investors aren't all that concerned with the numbers,
said consultant Zocche.
''They get excited by the story,'' he said. |
