It seems to me this situation and the bull/bear argument is nearly identical to the one that
was raging in 1996 and 1997 about AOL.
Aol then: No profits. Huge marketing expenditures. Marketing spending was 40% of
revenues!
AOL now: Marketing down to 15% of revenues (still pretty high) and growth still
strong, and they "own the space" (for now).
Brian,
I am long AOL too. I understand your point. There is a difference that I believe to be significant. AOL was accumulating subscribers that had their credit card billed month without any action from the subscriber.Amazon will only receive revenue if the "customer" takes action to make a purchase. It takes action to stop AOL from charging their subscriber. The passive/active issue I believe has merit.
This is from the 10Q. Keep in mind fulfillment expenses which means labor, etc are in this number:
" Marketing and Sales
1998 % CHANGE 1997 % CHANGE 1996
-------- -------- ------- -------- ------
(IN THOUSANDS)
Marketing and sales............. $133,023 229% $40,486 565% $6,090
Percentage of net sales......... 21.8% 27.4% 38.7%
Marketing and sales expenses consist primarily of advertising, promotional and public relations expenditures, as well as payroll and related expenses for personnel engaged in marketing, selling and fulfillment activities. All fulfillment costs not included in cost of sales, including the cost of operating and staffing distribution centers and customer service, are included in marketing and sales. The Company expects its costs of fulfillment to increase based primarily on anticipated sales growth and its planned distribution network expansion. Marketing and sales expenses increased in 1998 and 1997 primarily due to increases in the Company's advertising and promotional expenditures, increased payroll and related costs associated with fulfilling customer demand and increased credit card fees resulting from higher sales. The increase in 1998 was also attributable to the entry into music and video sales and the launch of new stores in Germany and the United Kingdom. Marketing and sales expenses decreased as a percentage of net sales due to the significant increase in net sales. The Company intends to continue to pursue its aggressive branding and marketing campaign, which includes radio, television and print advertising and significant expenditures for online promotion and advertising relationships. In addition, the Company intends to increase investments in marketing, promotion and fulfillment activities related to its product, service and international expansion. As a result of the foregoing, the Company expects marketing and sales expenses to increase significantly in absolute dollars. "
Glenn |
