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

To: Victor Lazlo who wrote (102215)	4/26/2000 10:43:00 PM
From: Jay Fisk	Respond to of 164684

Jungle logic: Amazon.com (AMZN:Nasdaq - news - boards) may have beaten revenue expectations and turned in a narrower-than-expected loss for the first quarter, but the real story to some investors is gross margins, one sign of how well run and potentially profitable a company really is. The fatter the margins, the better. And on the surface, Amazon's margins weighed in at an impressive 22.3%, up from 13% in the previous quarter. But dig deeper into the numbers and there are reasons to believe that the real gross margin is more like a paltry 1.2%. The actual size of Amazon's real margins depends on two things. First is whether you include revenue from a series of recent marketing deals with upstart companies that aren't making any money. Short-sellers don't think you should, because those companies are not really part of Amazon. By not including those revenues, the gross margin would be more like 18.5%. More important is whether you include fulfillment costs in the gross-margin calculation. Doing so would chop another 17 percentage points off margins, bringing the actual number down to around 1.2%. The reason this is so important is because like many e-commerce companies, Amazon currently expenses fulfillment costs (the cost of filling orders) as they occur and doesn't include them as part of the cost of sales, which determines a company's gross margin. But, as Amazon itself warns, it may have to adjust its accounting and classification of fulfillment costs as a result of an ongoing debate in the accounting industry over whether fulfillment costs should be treated as a cost of doing business, and thereby included as a cost of sales. Particularly disturbing this quarter is that fulfillment costs actually rose a percentage point from last quarter. Bottom line, according to one skeptic: "They're selling books, DVDs, consumer electronics and everything else for barely above cost." In which case, no matter what the company says, profitability is hardly around the corner. ------------------ Above exerpt from Herb Greenberg's "Heard on the Street" column at TSCM.