07:52am EST 17-Nov-98 DLJ Securities (Jamie Kiggen) AMZN
AMAZON.COM: Amazon Launches Video Store, Gift Center
DLJ ****** DONALDSON, LUFKIN & JENRETTE ****** DLJ
November 17, 1998 Jamie Kiggen (212) 892-8985
Tim Albright (212) 892-6801
Hilary Frisch (212) 892-4374
AMAZON.COM (AMZN: $126.25)
Amazon Launches Video Store, Gift Center
Can You Say Execution?
RATING: Buy Change: None 12-Mo. Target: $175
IMPORTANT POINTS
1. This morning Amazon announced the launch of its video store and its
expanded gift center which features a variety of products such as consumer
electronics. The video store wasn't anticipated until the March quarter,
and the expanded gift center was not anticipated until next holiday season.
2. Amazon has made numerous signals about its intention to launch a video
store. Its purchase of the Internet Movie Database (the definitive and
exhaustive information resource on virtually every film) in early April was
certainly a precursor to this launch. Amazon's video store makes available
over 60,000 titles for purchase (not rental), and enables consumers to tie
together book, music and video purchases in one cross-media purchase. In
addition, both video and music are well positioned to expand margins with
online delivery in a broadband world. Video retailing (not including
rental) is an estimated $8 billion market.
3. Amazon's expanded gift center is equally important. It includes
consumer electronics, gadgets, games and toys of all varieties for anybody.
Everything from a Palm Pilot to a camera to a Leatherman pocket knife can
be purchased on the Amazon gift center. Amazon's gift center, while not yet
exhaustive in scope, provides Amazon with an enormous leg up on the
learning curve for broad-based gift exchange and registry services.
4. Equally compelling are the gift features. Amazon's Gift Click enables
users to type in the name of the desired gift recipient, as well as the
gift, and Amazon will locate that individual, confirm his/her address, and
send a gift-wrapped package to the recipient. We think this has the
potential to expand per-user purchase activity as it eases a user's ability
to give gifts to a wide range of people. In other words, it'll increase the
number of presents under the tree.
5. In the end, it comes down to execution. Amazon became the single
largest music store within one quarter of the it launch of its music site.
It continues to accelerate its leadership position over Barnes & Noble in
the book business, where it generates approximately 10 times the book sales
of barnesandnoble.com, despite Barnes & Noble's increasingly expensive
efforts to the contrary. Now Amazon is claiming video and more broadly all
"gift' categories for its own. Given Amazon's track record to date, who are
we to doubt them?
6. We are not yet raising revenue estimates. Clearly the addition of both
sites provides a lot of upside to our model, both in the December quarter
and 1999.
7. Reiterating Buy rating and $175 target. Amazon is much more than the
dominant Internet bookseller, it is the dominant Internet commerce site and
its accelerated launch of these two additional stores should clearly signal
the scope of Amazon's ambition and its ability to deliver the goods. That
we are in the holiday season should provide fuel to the fire. We would be
aggressive buyers of AMZN, recognizing that its position as the dominant
online retailer has been measurably extended. |
