BancBoston Robertson Stephens Analyst Keith Benjamin's Another
Reiteration of STRONG BUY. Enjoy!
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01:46am EST 22-Mar-99 BancBoston Robertson Stephens (Benjamin, Keith 415-693-3
AMZN: Business Trends Continue to Look Positive; Reiterate Str...
March 22, 1999
A M A Z O N . C O M , I N C .
Business Trends Continue to Look Positive; Reiterate Strong Buy.
Keith E. Benjamin, CFA (415) 693-3285 keith_benjamin@rsco.com
Lauren Cooks Levitan (415) 693-3309 lauren_cooks_levitan@rsco.com
BancBoston Robertson Stephens BancBoston Robertson Stephens
AMAZON.COM, Inc. AMZN $135 1/16 3/22/99
Key Points:
** We believe Amazon.com's business momentum remains solid during Q1.
** During February, Amazon was once again a top e-tailing site with over 8.6
million unique visitors.
** Strong January and February usage and reach statistics provide us with
further indication that Amazon is on track to at least achieve our Q1 sales
estimate of $260.0 million which assumes modest 2.8% sequential growth.
** With an expanding range of products available at Amazon.com, we believe the
company's existing customer base of over 6.2 million customers is spending
more per capita.
** We continue to rate the shares Strong Buy given increased evidence of
Amazon's expanding e-tailing leadership and corresponding ability to grow
into its valuation.
SUMMARY:
We believe Amazon.com's business momentum remains solid during Q1. Recently
released MediaMetrix data indicate that Amazon continues to be the greatest
beneficiary of changing shopping patterns favoring e-tailers. Specifically,
during January and February, Amazon had 9.033 million and 8.669 million unique
visitors, respectively, versus 9.134 million users during December 1998. This
reflects a Q1 run rate of approximately 26.4 million unique users, a 12%
increase versus 23.5 million unique users during Q4.
During February, Amazon was once again a top e-tailing site with over 8.6
million unique visitors. In our view, these solid visitor trends, which reflect
a slight sequential decline from January's unique users of 9 million,
demonstrate Amazon's ability to attract new customers while retaining the
customers it gained during Q4. While the number of unique users does not equate
directly to sales (given varying trends in the percentage of visitors that make
purchases and their average transaction size), we view the metric as a good
proxy for the sales potential of an e-tailer.
We are also impressed by Amazon's reach relative to all shopping and other Web
sites. As shown above, roughly 15% of all Web users consistently visit Amazon
and roughly 23% of all on-line shoppers visit their site. We view this
substantial share as further evidence that Amazon is evolving into the first e-
tail portal. Further, shopping has clearly emerged as a major on-line activity
with over 60% of all Web users consistently visiting one or more shopping
sites.
IMPACT ON BUSINESS:
Strong January and February usage and reach statistics provide us with further
indication that Amazon is on track to at least achieve our Q1 sales estimate of
$260.0 million which assumes modest 2.8% sequential growth. Despite recent
investor concerns, we remain confident that the company's Q1 sales results will
show sequential growth. Our model assumes roughly 3% sequential revenue growth
from the seasonally strong December quarter. Based on strong subscriber growth
already reported thus far in the quarter at AOL, we expect Amazon could
similarly post customer growth in Q1. Given Amazon's historically high level of
repeat purchases and a trend towards higher spending per person, we believe
these factors should be enough to support revenue growth for the quarter.
We note that even if Amazon's number of unique visitors in March were to
decline by 5% sequentially (albeit highly unlikely), the company's total number
of unique visitors for the quarter would be 10% higher than last quarter. We
further note that we have recently seen a greater volatility in the month-to-
month changes in reach for competitor barnesandnoble.com (reach decreased 24.7%
for the same period from 7.8% in January to 5.8% in February), which we believe
has greater exposure to retail seasonality than Amazon with its greater product
diversification and evolving business model into an e-tail portal.
With an expanding range of products available at Amazon.com, we believe the
company's existing customer base of over 6.2 million customers is spending more
per capita. We view Amazon as the most visible e-tailing brand with over 6.2
million loyal customers and an increasing range of product categories
addressed. We expect these advantages to become even more meaningful as the
company continues to make infrastructure investments to provide better customer
service. In our opinion, these factors should result in Amazon being the
disproportionate beneficiary of increased penetration of on-line shopping. We
estimate the average Amazon customer spent roughly $98 in 1998. Our forward
estimates conservatively assume $122 in spending per customer in 1999, growing
to $135 by 2002. Given Amazon's strong brand, loyal customer base, and
increasing penetration of Web shopping, we would not be surprised if average
spending doubles or even triples by that time. We note that our estimates
reflect growth in Amazon's impressive e-tail business, but not yet its
expanding rental revenues which we believe could represent considerable upside
to our current estimates.
INVESTMENT IMPACT:
Amazon shares are currently trading at $135 1/16, or 33% below recent highs. We
believe recent concerns regarding Amazon's post-Christmas business trends and
the company's ability to successfully compete with the aggressive pricing
strategies of other e-tailers will prove unfounded. We are encouraged by the
February MediaMetrix data which reflect Amazon's continued e-tail leadership
and recommend purchase of the shares in advance of what we expect will be
strong Q1 results. Further evidence of sequential revenue growth in Q1 coupled
with the company's recent investment in Drugstore.com point toward Amazon's
evolution into a true e-tail portal. We continue to rate the shares Strong Buy
given increased evidence of Amazon's expanding e-tailing leadership and
corresponding ability to grow into its valuation.
THE COMPANY: Amazon.com, Inc. is a leading on-line provider of books and music
CDs via its Web site, Amazon.com. Amazon.com has established itself as a well-
known Internet brand. The company currently offers more than 4.7 million books,
music CDs, videos, DVDs, computer games, and other titles at competitive
prices. Amazon.com's marketing focuses on its ability to allow browsing and
buying of a much greater quantity of books and other media than could be shown
in the largest book and related retail stores. Amazon.com's growing popularity
seems more a function of the convenience of on-line shopping, in our view. We
believe Amazon.com will try to exploit its growing base of loyal buyers through
expansion of its Web site and product offerings.
INVESTMENT THESIS: WE BELIEVE AMAZON.COM IS WELL POSITIONED TO TAKE
ADVANTAGE OF THE INTERNET AS A NEW MEDIUM FOR MARKETING AND COMMERCE.
WE BELIEVE THE COMPANY HAS ALREADY ESTABLISHED ITSELF AS ONE OF THE FIRST,
LEADING ON-LINE MERCHANTS.
INVESTMENT RISKS: Among the risks are (1) the rapidly emerging market with no
earnings validation of the Internet as an effective commerce medium; (2) an
extremely competitive landscape, including other on-line bookstores and new
entrants and on-line service companies; (3) competitive price pressure; (4)
inventory risks associated with new strategy of buying directly from publishers
and maintaining increased physical inventory in warehouses; (5) significant
payments for placement leading Web networks; and (6) probability of significant
losses for at least the next few years. |
