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Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: KeepItSimple who wrote (76079)	9/1/1999 2:05:00 AM
From: Dwight E. Karlsen	Read Replies (2) \| Respond to of 164684

Some Analysts Cut Through Fog of Growth for Net Retailers (From nytimes.com business page): By LESLIE KAUFMAN Financial reports from Internet retailers are like the pronouncements of the Delphic Priestess: future focused and infamously inscrutable. Traditional retailers, Sears and Wal-Mart among them, report changes in sales for stores open at least one year, providing analysts a way to evaluate whether growth is real or merely a construct of new stores. Online merchants offer no such equivalent. Amazon.com, the king of E-tailers, reports skyrocketing revenues each quarter. But the numbers include income from newly acquired businesses, leaving outsiders no way to discern whether the core book business is driving the growth or whether income from the new additions masks a decline there. (In his most recent quarterly call with investors Amazon's founder and chief executive Jeff Bezos, said revenue was growing across all parts of the business, but declined to give specifics. His remarks put pressure on the stock, which has fallen 40 percent from its peak in April but remains up 16 percent for the year.) Since most Wall Street analysts who follow Internet retailers work for firms grown fat on taking these companies public, there is little incentive to complain. But a small group of renegade skeptics has taken on the task of clearing the fog and are applying their approach to companies besides Amazon. Their method is simple -- perhaps deceptively so. They are taking the two numbers that E-tailers love to trumpet (because they are always growing) total revenues for a quarter and total customer base and dividing one by the other. The results are eyebrow raising. They go straight down. Eric Von der Porten, who runs a small hedge fund in San Carlos, Calif., has crunched the numbers for Amazon and CDNow, the online music store rated the sixth-largest web shopping site in July by MediaMetrix. For CDNow he found that revenues per customer declined in 1998 from $23.15 to $21.26. The first half of 1999, after CDNow bought a competitor N2K, brought an even more precipitous drop to $18.15 at the end of the first quarter and $14.42 in the second. For Amazon, Von der Porten calculates a similar plunge. Revenues per customer for the fiscal quarter ended in July were $29.26, down 20 percent from a year earlier. Looked at through this prism, Ebay also looks like a bloodbath. Faye Landes, who follows the online auction leader for Thomas Weisel Partners, estimates that revenues per user declined from $10.30 in the first quarter of 1998 to $6.80 for the second quarter of this year. Significantly, the decline resists cyclical upturns around Christmas, and has been a steady drum beat since early last year. The sharp drop at Ebay suggests that its dazzling stock gain may be masking a major weakness. Ebay's stock has gained 56 percent this year. Ebay closed yesterday at $125.5625, up $6.125, while CDNow closed at $14.125, down 22 percent for the year and well off its $16 offering price. Internet companies are swift to point out the gaping flaw in the formula, namely that the number of customers is cumulative, not taking into account people who shop once or twice and never come back. It is inherently unfair, they say, to divide revenues for one quarter by all-time customers. "Not every person shops every quarter. So a steady decline is exactly what you would expect to see," said Bill Curry, an exasperated Amazon spokesman. Ebay also faults the approach. "It doesn't pass the common sense test," added Steve Westly, a vice president of Ebay. "On average, the number is going down because not all customers stay, but the customer who is staying is spending so much more that it outweighs the attrition." While stock analysts acknowledge the equation is not perfect, they say it is justified by the companies' own business model. Online merchants have long argued that they should not be judged as conventional businesses. They justify huge current loses by saying that revenues will be recouped as customers spend more. Amazon, for example, rationalizes the deficits it has rung up lately to add an auction house and a toy store to its site by reasoning that in the future, customers who previously used the site to buy just books will add a Ricky Martin CD and Pokemon cards to their shopping baskets when they come in search of the John Grisham thriller. "They are the ones inviting this comparison and this calculation," Von Der Porten said. "E-tailers need strong repeat business in order to generate profits from their customer bases. That's why the declining per-customer revenues call into question the viability of the business model." Sensitive as they are to the criticism, Internet retailers have not released numbers that might make such imperfect calculations unnecessary. Amazon could disclose how many customers it has each quarter, a statistic that would provide a fairer measure of growth. Will they? "Nope," said Curry. "We consider that proprietary information."