Does Amazon.com = 2 Barnes & Nobles?
byline on NYT article at:
nytimes.com
(free registration required)
[side note: Barnes&Noble serach link on front page of
the electronic NYT.]
excerpt:
"They have the better business model," says Paul Sonkin, a adjunct
professor of securities analysis at Columbia University who also
manages money.
Sonkin does not own Amazon because, at $119.8125 a share, the
current valuations scare him, but he has become a recent convert to
the Amazon game plan after hearing Joy Covey, Amazon's chief
financial officer, and other Amazon executives make their case last
month at a conference at BT Alex Brown in New York. Like Dell
Computer and other direct sellers, Amazon enjoys some advantages
over traditional retailers.
The author goes on to mention such advantages as:
minimal inventory (though we know that comes at some
price paid to the book supplier), turning over inventory
10 times faster than B&N, or 26 times a year. The
article says Amazon avoids carrying costs, but my
guess is they have to be paid somewhere, otherwise
the book supplier is going out of business.
The article goes on to discuss the cash flow model
employed by Amazon where it receives credit card
payments in a few days, but takes up to 45 days to
pay its suppliers. At a $480 mil. run rate, that would
be about 40 mil. per month in generated cash, and at
about 0.4% interest per month, maybe 1.6 mil. generated
per month on the float This might improve margins,
but my guess is that it doesn't quite offset the 8%
in carrying/handling fees, or it's a breakeven.
Here's the first ref. I've seen on how B&N did last
year with online ordering:
Such an advantage, of course, is not unique to Amazon. It is shared by
other Internet sellers like CD Now, which sells music, and Cyberian
Outpost, which sells computer equipment, and by build-to-order
manufacturers like Dell Computer. Even Barnes & Noble has it on a
small scale through its Internet arm, Barnesandnoble.com, which sold
$14.6 million in books last year.
The article says that of the $39 mil. in marketing/sales
that $21 mil. was spent on advertising. The B&N rep.
says this extra advertising cost is equiv. to the cost
that B&N pays for proper location of its stores, to
generate foot traffic.
Here's an interesting quote from Benjamin at BARS:
He said the stock could fall 10 percent to 20 percent this week after
the company reports quarterly results on Wednesday. After that, it will
be back to the guessing games about future earnings. "Amazon stock
challenges us," Benjamin said. "There's a wide range of what they can
earn."
As a trader, I'm not so certain we'll see that 20% sell-off, given
AMZN's steady move up last week, but one thing for sure, AMZN
seldom disappoints in the volatility department. |
