Amazon.com ? 2 August 1999
4
increase year-over-year in Q3 of 2000, when we project
that the average customer will purchase $30 in the quarter,
up from $29 this year.
There are many reasons why Amazon.com?s revenue-per-customer
might continue to decrease, of course, and any of
them would call the ultimate success of the franchise into
question: 1) online shopping might be something of a
fad?cool at first, but ultimately not all that exciting, 2)
customers might confine most of their purchases to one of
Amazon?s stores?allowing the company to have the best
economics in the industry (thanks to scale and cross-product
leverage) but get little leverage in customer
acquisition costs, or 3) each new customer might buy less
than the last indefinitely, subjecting the company and its
shareholders to the law of decreasing returns.
We continue to believe that Amazon will ultimately be
successful at cross-selling and increasing revenue per
customer, and, for now, we remain comfortable with our
aggressive forecasts. If the revenue per customer metric
does not begin to stabilize over the next few quarters,
however, we will have to trim our forecasts.
Conclusion. Amazon.com is still the industry leader in a
new industry with substantial growth potential in our view.
It has one of the strongest brands and management teams
in the industry, and, at this point, largest opportunity in all
of online retailing. In our opinion, the challenges Amazon
faces are less about Amazon than they are about the
growth phase of the Internet at large. As the growth of
new U.S. internet users slows on a percentage basis, for
example, the entire industry will likely find it harder and
harder to reduce customer acquisition costs?as loyalties
will be developed and there will simply be fewer new
customers to go around.
[AMZN] The securities of the company are not listed but trade over-the-counter in the United States. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from
registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 1999 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). This report has been issued and approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is
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