September 20, 2000
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SMARTMONEY.COM: Amazon's Grab-Bag Party
By CINTRA SCOTT
NEW YORK -- Ever wonder what goes on at those day-long analyst meetings you've heard about? Thanks in part to the Securities and Exchange Commission new disclosure rules, companies are increasingly inviting analysts and investors alike to their feel-good fests.
If Amazon.com's (AMZN) recent spectacle is any indication of what they're like, however, we'll stay home, thank you.
On Tuesday, Amazon rolled out the red carpet to regular folks for the first time. Well, not exactly. It Webcast portions of the event, including the audio from the morning's proceedings and management's prepared slide show. While viewers couldn't see Henry Blodget of Merrill Lynch rub shoulders with Mary Meeker of Morgan Stanley Dean Witter, they could hear them ask questions and scoop up door prizes.
That's right, door prizes. Blodget is now the proud owner of a Razor scooter with blue wheels (e-tail value on Amazon: $99.99). He won the trendy means of urban transport by answering this question: What is Amazon's second largest business category in September (to date)? Blodget was first to say electronics, but just about everyone in attendance knew the answer. Chief Executive Jeff Bezos and the rest of Amazon's top brass had been repeating that fact like a skipping CD all day. (The company's media unit - that is, music, books and video - is still No. 1.)
Of course, the fun didn't end there. Describing this as the "Kitty Hawk era" of e-commerce, Bezos chose to discuss Amazon's future in terms of initials: "MM, SS, GG, CC BB." MM stands for make money, SS for single store (as in boost single-store sales), GG for go global, CC for current customers (as in get more money from them), and BB for bold bets. If you need a mnemonic device to remember Amazon's new priorities, Bezos has one for you: "Make Some Great Cash, Baby."
Before you groan, consider what Amazon is up against. The five-year-old money-losing company has faced serious skepticism going into this holiday season. Growth is slowing, even before the first penny of profit has been made. But Bezos is trying to get investors excited about milestones along the path to profitability - which he suggests is being paved with efficiency and productivity gains.
The problem is, no one at the company is ready to deliver what investors really want to hear: an actual certain when Amazon might MM. Needless to say, that DSW (dosen't sit well) with WS (Wall Street), which helps explain why JB's stock is down 14% in the last week.
While the stock has always been volatile, September has traditionally treated it well. In the past two years, shares have taken off as early as Labor Day and haven't stopped until New Year's celebrations ended. It's all about the hyped holiday season. But this year, the approach to Christmas is filled with talk of Amazon's retaining CCs and leveraging SSs. And that's not inspiring optimism.
Analysts came to Nevada, home of one of Amazon's seven distribution centers, with laundry lists of questions. The Street was ready for some good, stock-popping news. "We speculate Amazon may announce another strategic category and blue-chip partner," wrote ABN Amro's Kevin Silverman on Monday, referring to the company's well-received deal with Toys "R" Us (TOY), which was announced in Aug. 10.
Silverman, of course, was wrong. The morning session started with "Make some great cash, baby" and segued into the company's strategy to become a more efficient business. The best news probably came from Europe. Even though critics charge Amazon's international sales growth has been slipping, Diego Piacentini, senior vice president of international operations (who left Apple Computer (AAPL) to join Amazon six months ago), said international operations may become profitable more quickly than its U.S. business. It would have helped if he had estimated when that might be. But he didn't.
As for the Christmas season, Amazon Vice President Jeff Wilke took the time to look back on last year's multimillion dollar spending spree with a shudder. This year, "operational excellence" will replace "deliver at any cost" as the company's marching orders, Wilke assured.
He insisted that the task of handling last year's 90% sales growth in the fourth quarter was "Herculean." But he said that such a scramble wouldn't be necessary this year. With seven distribution centers up and running, Amazon is ready to meet demand through 2001. Of course, while Wilke charted the company's move from -5% to +10% shipping margins, people began asking the big-picture question: When will Amazon turn profitable?
It went unanswered.
Did the door prize sweeten Blodget's view of Amazon? Apparently not. The Merrill analyst's note Wednesday was titled "Lots of Pretty Forest, Few Trees," referring to the lack of new specifics about Amazon's business. "Given the deceleration of revenue growth and lack of visibility into long-term profitability, we continue to rate the stock Accumulate," he concluded.
Over the past several quarters, Bezos has tried just about everything to win Wall Street back to his side. He's tried the aloof approach, the grumpy, tough-guy approach and now the fun-and-games approach. What's clear, however, is that it doesn't have to be that complicated.
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