03:07pm EST 5-Jan-99 BT Alex. Brown Incorporated (S. Andrikopoulos/L. Ber) AMZ
AMZN: Holiday Season Hype Realized--Previewed $250 Million 4Q Reven-Strong Buy
Andrikopoulos, Shaun G. (415) 477-4234 01/05/1999
Berger, Lance A (415) 732-3004
Patel, Jeetil J (415) 477-4223
BT Alex. Brown Incorporated
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AMAZON.COM INC. (AMZN) "STRONG BUY"
Holiday Season Hype Realized--Previewed $250 Million 4Q Revenue--Maintain
"Strong Buy" Investment Rating
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HIGHLIGHTS:
SANTA BRINGS IMPRESSIVE GIFT TO THE KING OF E-COMMERCE
Amazon.com today previewed exceptionally strong 4Q revenues of approximately
$250 as we anticipated in our 'December Quarter E-Tailing Preview' first call
(12/16/98). We emphasize that $250 mm is at the upper-end of our $235-$245 mm
upside range that we discussed in mid-December, and is considerably higher than
our $187.7 mm published revenue forecast. We note that $250 mm in 4Q revenues
represents 63% sequential growth and 279% year/year growth, both impressive
figures in our opinion. We believe that Amazon.com's ability to capitalize on
the strong holiday shopping season is a testament to its growing brand equity
and reinforces our thesis that Amazon.com is the E-commerce King. We feel this
monumental 4Q performance substantiates the hype surrounding the Company's
stock performance and further indicates that e-commerce has quickly evolved
into a nearly ubiquitous shopping platform that is here to stay.
We note that Amazon.com added more than 1 mm new customers during the holiday
season (November 17 - December 31), while it shipped more than 7.5 mm items
during the same period. Given that the Company added 1 mm customers during the
holiday season, we believe that Amazon.com's total new additional customers for
4Q could be as high as 1.25-1.5 mm, which implies the Company could have
finished the quarter with approximately 5.8-6.0 mm cumulative customer
accounts.
We note that this is significantly higher than our current 5.6 mm estimate.
Based on our these cumulative customer account estimates, we anticipate the
average revenue generated per ordering customer in the quarter could have
increased to roughly $55-$60 from $46 in 3Q. This illustrates that indeed
consumers spend more during the holiday season. We note that we would expect
the average revenue per ordering customer to trend down sequentially in 1Q'99
as our model forecasts.
NO CHANGE TO 4Q EPS ESTIMATE-SOLID CD AND VIDEO SALES LOWER GROSS MARGIN
Although we are excited about the Company's previewed revenue figure we feel
that a significant portion of the upside was generated from stronger than
expected CD and video sales, which traditionally have lower gross margins than
the book industry. We also note that the Company experienced higher than
expected seasonal costs associated with fulfillment and customer service. As
such we do not expect upside to our 4Q operating loss per shares estimate of
$0.54.
We are not adjusting our current revenue or operating loss per shares estimates
at this time and anticipate the Company will provide further guidance on
January 26 when it discloses its full 4Q financial results. We anticipate that
we will be raising our 1999 and 2000 revenue estimates at that time. We remind
investors that Amazon.com's 3-for-1 stock split went effective as of today.
CONCLUSION AND RATING
We maintain our "strong buy" investment rating on shares of Amazon.com. We are
firmly convinced that Amazon.com has the potential to establish a true
multi-national brand that will compare with the likes of Coke, Sony, or The
Gap. As such, we believe that Amazon represents a core holding for investors
seeking exposure to the Internet and E-commerce. |
