Moody's rates Amazon.com snr discount notes
(Press release provided by Moody's Investors Service)
NEW YORK, May 5 - Moody's Investors Service assigned a rating of Caa2 to the
$275 million (net proceeds) senior
discount notes due 2008 of Amazon.com, Inc.
The rating outlook is stable.
The rating reflects the uncertainties about the company's ability to achieve profitability in
the near to medium term, and
concerns about its very low gross margin as a result of its commitment to low prices, its
high merchandise costs due to heavy
reliance on sourcing from distributors, and its exclusive use of credit card sales.
In addition, the rating recognizes a high level of fixed expenses due to the company's
early stage of development, the high
fixed cost of advertising 'real estate' on the World Wide Web, increasing competition
both on and off the Internet from
well-capitalized retailers, and the uncertainty of the return from future investments in
capital, new products, or acquisitions.
The rating also considers the benefits derived from the company's advantage as the first
significant Internet-only retailer.
These benefits include strong name recognition, its exclusive rights to attractive
advertising 'real estate' on popular World
Wide Web sites, and widespread coverage that the company receives in financial, trade
and consumer circles.
All of these benefits have led to explosive sales growth to over $150 million in annual
revenues in less than two years.
The company also has the potential to generate advertising revenues from its own Web
site.
Amazon.com will have extremely high financial leverage after the note issue, which will
require significant growth in
revenues and profitability to eventually service the debt.
The company's ability to achieve these goals is tied to significant uncertainties, which
include the growth of Internet
commerce, competition from on-line and traditional retailers, taxation and other
government regulation, and the company's
ability to improve its operations, among other issues.
Proceeds from the bond notes will be used to repay a $75 million term loan closed in
December 1997, and to fund future
operating losses and business development, which could include acquisitions.
The notes are senior obligations of Amazon.com, Inc., and are subordinated to existing
and potential obligations of current or
future subsidiaries.
The notes will not pay cash interest until 2003. Amazon.com, Inc., headquartered in
Seattle, Washington, is a retailer of
books and music exclusively over the Internet.
The company had revenues of about $148 million in the year ended December 1997. |
