To the thread:
Here's a little more info to chew on. Offered in the spirit of sharing.
From the latest 10-k
Amazon.com
Selected operating data
Net Sales
1998 % CHANGE 1997 % CHANGE 1996
-------- -------- -------- -------- ------
(IN THOUSANDS)
Net sales. $609,996 313% $147,787 839% 15,746
Comment: Pretty rapid growth.
Gross Profit
1998 % CHANGE 1997 % CHANGE 1996
-------- -------- ------- -------- ------
Gross profit..... $133,841 364% $28,818 733% $3,459
Gross margin % 21.9% 19.5% 22.0%
Comment: margins recover somewhat in 1998. Is 20% a reasonable
long term expectation? Compare to WalMart at 20.5%.
Product Development
1998 % CHANGE 1997 % CHANGE 1996
------- -------- ------- -------- ------
Prod development.. $46,807 236% $13,916 480% $2,401
% of net sales... 7.7% 9.4% 15.2%
Comment: Percentage is falling, yet still high as infrastructure
buildout continues. Will remain high in $ but should continue
falling as a percent of revenues. Eventually coming down to
3-4% of sales? Possibly less?
General and Administrative
1998 % CHANGE 1997 % CHANGE 1996
------- -------- ------ -------- ------
Gen & admin....... $15,799 125% $7,011 397% $1,411
% of net sales.... 2.6% 4.7% 9.0%
Comment: Trends are downward. Headed for under 2% of sales?
Operating income before
Marketing and Sales expense
1998 % CHANGE 1997 % CHANGE 1996
-------- -------- ------- -------- ------
Operating income
Before Marktg/Sales $71,235 802% $7,891 N/A $(353)
% of net sales.. 11.7% 5.3% (2.2)%
Comment: You can't run a business on this measure, but getting the
extraordinary expenses out of the way, and looking at results before
marketing expenses lets the basic operating trend show. With Gross
Margin at 20%, Product Development at 4%, and G&A at 2%,
this line item could head toward 14% of revenues.
Marketing and Sales
1998 % CHANGE 1997 % CHANGE 1996
-------- -------- ------- -------- ------
Marketing & sales. $133,023 229% $40,486 565% $6,090
% of net sales.. 21.8% 27.4% 38.7%
% of gross margins 99.4% 140.5% 176.1%
Comment: I added a new line item: Marketing and sales as a % of Gross
Margin. It is still at an irrationally high 99.4% in 1998, but is
trending down. Management doesn't normally spend those kind of
dollars without the expectation of a continuing return on the
"investment". (Unless they ARE crazy!). The actual ROI on this is yet
to be proven, as several on the board have pointed out.
Marketing was up in 1998 for International expansion (UK and Germany)
and Music/Video sales rollout. Marketing and sales expense falling as
a % of Sales and as a % of Gross Margins, yet still far higher than
you would see in a stable industry. What would you say to an
assumptions for stable % of Marketing and Sales expenditures at 6-8%
of revenues, or 30-40% of gross margins?
Earnings before interest, taxes, and non-recurring items
1998 % CHANGE 1997 % CHANGE 1996
-------- -------- ------- -------- ------
Income/(loss) $(61,788) 89% $(32,595) 406% (6,443)
% of net Sales (10.1)% (22.1)% (40.9)%
Comment: Stay the course, Captain! But don't let the ship run out
of rations! (or in this case, cash).
If Amazon can reach those estimates of Gross Margin at 20%, Product
Development costs at 4%, General & Administrative at 2%, and
Sales and Marketing at 6-8% or revenues, this line item could be
headed for to 6-8% of revenues. This would compare favorably to
Walmart, where Gross margins run 20.5% and EBITD is 7.1% of sales.
Final comment: When you are in a business where there are
“no barriers to entry”, then aggressive pricing and aggressive
marketing may be the best and most rational weapons you can use.
FWIW.
Good luck to the optimists and to the pessimists.
With enough volatility, everybody can make money. :-)
Brian |
