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

To: spal who wrote (102204)	4/26/2000 8:47:00 PM
From: A.L. Reagan	Read Replies (3) \| Respond to of 164684

Spal, maybe they need a new CFO. The current guy is quoted in the PR as trumpeting gross margin improvement. Color me stupid, but on my calculator the gross margins slipped in US B/M/V from 22.2% in '99 to 20.6% in '00. This is not gross margin improvement! Further muddying the water is the classification of fulfillment costs as a result of the facilities expansion. AMZN disclosed in the PR that FASB/SEC are reviewing the classification of certain functional expenses between COS and SG&A, which AMZN disclosed as a risk factor. This matters because of the shift in fulfillment to the in-house warehouses. But without an internal line-item operating statement, it's pretty hard to tell where exactly they are loosing the battle. Anyway, I don't follow this company closely but it would seem to me that if the same eps had been achieved with at least segment profitability in core US B/M/V and slightly larger losses in "the other stuff" that the Street reaction would be more positive. For almost any retail model to work at all the incremental operating profit from an extra $1 of sales s/b around at least two and a half cents, and that's assuming a minimal capital investment per $1 of sales. The sorry truth is that they may have to raise prices to improve gross margins. If they have done as good a job as they claim in coddling customer loyalty, this ought to work. If the customers flee in droves if retail prices go up 5%, well that tells it all vis a vis the continuing fluff about how wonderful the customer interface is. I suspect they can get away with margin expansion via price increases. (Just don't tell Greenspan.) An interesting comparison would be between AMZN and DELL. If you think about it, there are striking similarities in the basic concept of what these two companies are about now that so much of Dell's sales are generated from the web. DELL is a marketing and customer fulfillment company, not a tech company in the traditional sense. So is AMZN. At each customers fill up a web shopping cart, it's packed and shipped. This would make for an interesting in-depth benchmarking analysis. What is DELL doing that AMZN isn't? They are both playing execution games, not gorilla games. How will AMZN execute? Where's the operating leverage? Where's the % improvement in margins? I'm not sure it's even worth the time to try to analyze the new businesses.