Some interesting items from Amazon's most recent 10Q report (May 15, 2000):
freeedgar.com
(all points below pertain to the quarter ending March 31, 2000)
1. 70% of revenues and 65% of gross profit comes from books, music and DVD/Video.
From the report:
==============================================================
US BOOKS, EARLY-STAGE
MUSIC AND BUSINESSES
DVD/VIDEO INTERNATIONAL AND OTHER CONSOLIDATED
--------- ------------- --------- ------------
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2000:
Revenues.............................. $401,415 $ 75,132 $ 97,342 $ 573,889
Gross profit.......................... 82,855 16,036 29,243 128,134
Segment loss.......................... (2,425) (27,448) (69,393) (99,266)
Other operating expenses.............. -- -- -- (98,626)
Net interest expense and other........ -- -- -- (22,269)
Equity in losses of equity-method
investees.......................... -- -- -- (88,264)
----------
Net loss.............................. -- -- -- (308,425)
==============================================================
2. "Outbound Shipping Charges" made up 13% of Amazon's revenue. Should gas prices continue
to go up, then Outbound Shipping Charges will most likely continue to increase, which will
help to boost Amazon's revenue.
From the report:
==============================================================
Net Sales
Net sales includes the selling price of products sold by us, less returns
and promotional gift certificates, and also includes outbound shipping charges
charged to our customers. Shipping revenue was $74.6 million and $44.2 million
for the three-month periods ended March 31, 2000 and 1999, respectively.
==============================================================
3. 3% of revenue and 15% of gross profit comes from Amazon Commerce Network participating
companies (ACNs). Amazon accounted for $19.9 million in revenue from ACN's during the quarter
ending March 31, 2000 - this translates into pure gross profit (as there is not accounting
cost associated with this revenue). ACN revenue is coming from companies such as Drugstore.com
Ashford.com, Greenlight.com, Kozmo.com. Amazon has invested either cash or stock (mostly) in
these companies - in return, these companies commit to pay Amazon quarterly installments in order to be
featured on Amazon's site. Some companies have paid amounts in advance - Amazon recognizes such
payments as deferred revenue. In the most recent quarter, Amazon realized $19.9 million of this
deferred revenue as current revenue. There is a risk (at least in my view) that this revenue
and gross profit stream may dry up for Amazon - as many of the ACN companies appear to be
having a difficult time.
From the report:
==============================================================
Net sales also includes revenues earned from activities of ACN of $19.9 million for
the three months ended March 31, 2000, as well as commissions from auctions and
zShops transactions.
==============================================================
4. Amazon's report annual increase in gross margin, from 22.1% to 22.3% was primarily due to the
gross profit generated from ACNs. Without ACN revenue/profit, gross margin would have
declined to 19.6%. Gross margin when compared to the quarter ending 12/31/1999 actually showed
an increase - indicating that their margins during the holiday season were, perhaps, not so
good. The trend also indicates that their gross margins are being hurt by shipping - as they
move into bigger and bulkier items (toys, electronics, tools, etc.), shipping costs increase,
and therefore, margins from shipping decline. Margins have also been hurt by "split shipments".
From the report:
==============================================================
Gross profit consists of net sales less the cost of sales, which consists of the
cost of merchandise sold to customers, as well as inbound and outbound shipping
costs and the cost of tangible supplies used to package product for shipment to
customers. Gross profit increased in absolute dollars, reflecting our increased
sales volume. Gross margin increased slightly, from 22.1% to 22.3%, primarily
due to the generation of revenue from the higher-margin service activities of
ACN. Gross profit from ACN activities was $19.5 million for the three months
ended March 31, 2000. Excluding the effect of ACN, gross margin would have been
19.6% during the three months ended March 31, 2000, a decrease of 2.5% compared
to the three months ended March 31, 1999, but an increase of 6.6% compared to
the three months ended December 31, 1999. The decrease from the three months
ended March 31, 1999 to March 31, 2000 is primarily due to the reduction in
gross profit (loss) from shipping. Gross profit (loss) from shipping, which
represents shipping revenues less outbound shipping costs, was $(3.4) million
and $6.9 million for the three-month periods ended March 31, 2000 and 1999,
respectively. The change in gross profit (loss) from shipping is primarily a
function of the addition of the toys, electronics and tools and hardware product
lines since March 31, 1999, which have had lower shipping margins than books,
music and DVD/video products. It is also a result of our distribution center
expansion during 1999, which has led to increased split-shipments.
==============================================================
5. Proposed changes to accounting rules may result in a decrease in Amazon's
gross profits:
From the report:
==============================================================
Organizations responsible for promulgating accounting standards are
currently reviewing the financial statement classification of, and accounting
for, fulfillment and order processing costs and other items by a number of
retailers, online and offline, including Amazon.com. This review may lead to new
accounting standards that could require some or all fulfillment and order
processing costs to be classified as costs of sales and/or require some or all
of such costs to be capitalized in inventory. We currently include these costs
in marketing, sales and fulfillment.
==============================================================
6. While Bill Curry (Amazon spokesman) states that recent analyst concerns about Amazon's
cash flow are "absolute, pure unadulterated hogwash", Amazon's 10Q report expresses some rather
real and strong concerns about the company's ability to generate cash (mind you, these are
all from the doom & gloom warnings section at the end of the report). I suppose that should
bankruptcy ever occur for the company, Amazon will be able to say to investors, "don't say
we didn't warn you". Some of the more interesting warnings form the report are below:
From the report:
==============================================================
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND
PROSPECTS
WE HAVE AN ACCUMULATED DEFICIT AND ANTICIPATE FURTHER LOSSES
We have incurred significant losses since we began doing business. As of
March 31, 2000, we had an accumulated deficit of $1.19 billion. We anticipate at
June 30, 2000 that total shareholders' equity will be a deficit. While we expect
to generate income on a pro forma operating basis in our US Books, Music and
DVD/video segment for the full year in 2000, we are incurring substantial
operating losses and will continue to incur such losses for the foreseeable
future. These losses may be significantly higher than our current losses. To
succeed, we must invest heavily in marketing and promotion and in developing our
product offerings and technology and operating infrastructure. In today's tight
labor market we could be forced to increase our cash compensation to employees
which could hurt our operating results. In addition, the expenses associated
with our recent and future acquisitions and investments and interest expense
related to our outstanding debt securities will adversely affect our operating
results. Our aggressive pricing programs have resulted in relatively low gross
margins. Our historical revenue growth rates are not sustainable and our
percentage growth rate will decrease in the future.
OUR SIGNIFICANT AMOUNT OF INDEBTEDNESS COULD AFFECT OUR BUSINESS
WE CANNOT ACCURATELY FORECAST REVENUES OF OUR BUSINESS. WE MAY EXPERIENCE
SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS. OUR BUSINESS IS
SUBJECT TO SEASONAL FLUCTUATION. FUTURE FLUCTUATIONS IN OPERATING RESULTS OR
REVENUE SHORTFALLS COULD ADVERSELY AFFECT OUR SUCCESS
OUR PLANNED GROWTH WILL CONTINUE TO PLACE A SIGNIFICANT STRAIN ON OUR
MANAGEMENT, OPERATIONAL AND FINANCIAL RESOURCES
WE FACE SIGNIFICANT INVENTORY RISK ARISING OUT OF CHANGES IN CONSUMER DEMAND AND
PRODUCT CYCLES. WE FACE ADDITIONAL INVENTORY RISKS BECAUSE OUR INVENTORY
MANAGEMENT SYSTEMS ARE NOT WELL INTEGRATED DUE TO THE MANUAL NATURE OF SOME OF
OUR OPERATIONAL PROCESSES
ENTERING NEW BUSINESS AREAS WILL REQUIRE SIGNIFICANT EXPENSE AND COULD STRAIN
MANAGEMENT, FINANCIAL AND OPERATIONAL RESOURCES
IF WE DO NOT SUCCESSFULLY EXPAND AND OPERATE OUR DISTRIBUTION CENTERS, OUR
BUSINESS COULD BE HARMED
THE DISPROPORTIONATE AMOUNT OF OUR NET SALES THAT WE EXPECT TO REALIZE DURING
THE FOURTH QUARTER OF OUR FISCAL YEAR PLACES SIGNIFICANT STRAIN ON OUR BUSINESS
WE MAY NOT BE SUCCESSFUL IN OUR EFFORTS TO EXPAND INTO INTERNATIONAL MARKETS
OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN MAKING AND INTEGRATING
BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES, INCLUDING THOSE ASSOCIATED WITH
THE AMAZON COMMERCE NETWORK
THE LOSS OF KEY SENIOR MANAGEMENT PERSONNEL COULD NEGATIVELY AFFECT OUR BUSINESS
THE LONG-TERM VIABILITY OF THE INTERNET AS A MEDIUM FOR COMMERCE IS NOT CERTAIN
WE RELY ON A SMALL NUMBER OF SUPPLIERS; OUR BUSINESS WOULD BE HARMED IF OUR
CURRENT SUPPLIERS STOP SELLING MERCHANDISE TO US ON ACCEPTABLE TERMS
GOVERNMENT REGULATION OF INTERNET COMMERCE IS EVOLVING AND UNFAVORABLE CHANGES
COULD HARM OUR BUSINESS
WE COULD BE REQUIRED TO COLLECT TAXES ON THE PRODUCTS WE SELL
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR MAY
BE ACCUSED OF INFRINGING INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES
OUR STOCK PRICE IS HIGHLY VOLATILE
==============================================================
I enjoy taking risks in life. But being long AMZN at this point is one risk I don't
really wish to take.
-Eric |
