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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 234.70

-1.2%

Nov 14 9:30 AM EST

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To: Sarmad Y. Hermiz who wrote (57024)	5/17/1999 9:35:00 PM
From: H James Morris	Read Replies (1) of 164684

Sarmad, pork chops?? Let me put it to this way. I made enough money with my Amzn hedge that a can eat pork chops for the next 12 months, free. Isn't that a terrible thought?? Not as bad the the speculators that paid 200 or >. Don't you think. You've got to read the Forbes article on page 50. This what Ms Covey says to justify her market cap."So how is this industry of the future going to pay off for the investors? Brushing aside the question of just when Amazon's profit margin will turn positive, Covey says investors miss the point if they focus on that future profit margin. 'The mistake people make is to get concerned about what percentage we get on sales,' Covey says. 'We could have a very low return on sales and still have a huge return on invested capital because our model is so scalable.' This is how Covey sees her company growing into its market cap. How do you grow sales if you're a traditional retailer? You have to build more stores. Not so for Amazon. Wal-Mart is valued at $211 billion and has $140 billion in revenue. Amazon's value is at $21 billion with $1 billion a year in sales. Both retailers have gross margins of about 20%. Wal-Mart's operating margins have consistently been around 6%. Amazon fully believes it can have operating margins of 6% or better. So if Amazon can sell $10 billion in goods, maintain a gross margin near 20% and hold costs to $1 billion a year, it would have $1 billion in operating income (net before depreciation, interest and taxes). And you can run an on-line store with precious little debt and equity capital. The problem is,even a high return on invested capital may not represent such a high return on Amazon's present market value.

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