Read all the risks and upcoming problems for AMZN for yourself... taken directly from todays 10K for AMZN.....
COMPETITION
The online commerce market, particularly over the Web, is new, rapidly
evolving and intensely competitive. In addition, the retail book industry is
intensely competitive. The Company's current or potential competitors include
(i) various online booksellers and vendors of other information-based products
such as CDs and videotapes, including entrants into narrow specialty niches,
(ii) a number of indirect competitors that specialize in online commerce or
derive a substantial portion of their revenues from online commerce, through
which retailers other than the Company may offer products and (iii) publishers,
distributors and retail vendors of books, music and videotapes, including Barnes
& Noble, Inc., Bertelsmann AG and other large specialty booksellers and
integrated media corporations, many of which possess significant brand
awareness, sales volume and customer bases. The Company believes that the
principal competitive factors in its market are brand recognition, selection,
personalized services, convenience, price, accessibility, customer service,
quality of search tools, quality of editorial and other site content,
reliability and speed of fulfillment. Many of the Company's competitors have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than the Company.
Certain of the Company's competitors may be able to secure merchandise from
vendors on more favorable terms, devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing or inventory availability
policies and devote substantially more resources to Web site and systems
development than the Company. Increased competition may result in reduced
operating margins, loss of market share and a diminished brand franchise. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors.
The Company expects that competition in the online commerce market will
intensify in the future. For example, as various market segments obtain large,
loyal customer bases, participants in those segments may seek to leverage their
market power to the detriment of participants in other market segments. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on online retailers, including the Company.
For example, "shopping agent" technologies will permit customers to quickly
compare the Company's prices with those of its competitors. Competitive
pressures created by any one of the Company's competitors, or by the Company's
competitors collectively, could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. See
"Additional Factors That May Affect Future Results -- Competition."
INTELLECTUAL PROPERTY
The Company regards its patents, copyrights, service marks, trademarks,
trade dress, trade secrets, proprietary technology and similar intellectual
property as critical to its success, and relies on trademark, copyright and
patent law, trade secret protection and confidentiality and/or license
agreements with its employees, customers, partners and others to protect its
proprietary rights. The Company pursues the registration of its trademarks and
service marks in the U.S. and internationally, and has applied for the
registration of certain of its trademarks and service marks. In addition, the
Company has filed U.S. and
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international patent applications covering certain of its proprietary
technology. Effective trademark, service mark, copyright, patent and trade
secret protection may not be available in every country in which the Company's
products and services are made available online. The Company has licensed in the
past, and expects that it may license in the future, certain of its proprietary
rights, such as trademarks or copyrighted material, to third parties. While the
Company attempts to ensure that the quality of its brand is maintained by such
licensees, there can be no assurance that such licensees will not take actions
that might materially adversely affect the value of the Company's proprietary
rights or reputation, which could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, trade dress, patents and
similar proprietary rights. In addition, there can be no assurance that other
parties will not assert infringement claims against the Company. The Company has
been subject to claims and expects to be subject to legal proceedings and claims
from time to time in the ordinary course of its business, including claims of
alleged infringement of the trademarks and other intellectual property rights of
third parties by the Company and its licensees. Such claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources.
EMPLOYEES
As of December 31, 1997, the Company employed 614 full-time employees. The
Company also employs independent contractors and other temporary employees in
its editorial, fulfillment and finance departments. None of the Company's
employees is represented by a labor union, and the Company considers its
employee relations to be good. Competition for qualified personnel in the
Company's industry is intense, particularly for software development and other
technical staff. The Company believes that its future success will depend in
part on its continued ability to attract, hire and retain qualified personnel.
See "Additional Factors That May Affect Future Results -- Management of
Potential Growth" and "-- Dependence on Key Personnel."
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to other information in this Annual Report on Form 10-K, the
following important factors should be carefully considered in evaluating the
Company and its business because such factors currently have a significant
impact or may have a significant impact on the Company's business, prospects,
financial condition and results of operations.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES. The
Company was incorporated in July 1994 and commenced offering products for sale
on its Web site in July 1995. Accordingly, the Company has a limited operating
history on which to base an evaluation of its business and prospects. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
online commerce. Such risks for the Company include, but are not limited to, an
evolving and unpredictable business model and the management of growth. To
address these risks, the Company must, among other things, maintain and increase
its customer base, implement and successfully execute its business and marketing
strategy, continue to develop and upgrade its technology and
transaction-processing systems, improve its Web site, provide superior customer
service and order fulfillment, respond to competitive developments and attract,
retain and motivate qualified personnel. There can be no assurance that the
Company will be successful in addressing such risks, and the failure to do so
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Since inception, the Company has incurred significant losses and as of
December 31, 1997 had an accumulated deficit of $33.6 million. The Company
believes that its success will depend in large part on its ability to (i) extend
its brand position, (ii) provide its customers with outstanding value and a
superior shopping experience and (iii) achieve sufficient sales volume to
realize economies of scale. Accordingly, the Company intends to continue to
invest heavily in marketing and promotion, product development and technology
and operating infrastructure development. The Company also offers attractive
pricing programs, which have reduced its gross margins. Because the Company has
relatively low product gross margins,
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achieving profitability given planned investment levels depends upon the
Company's ability to generate and sustain substantially increased revenue
levels. As a result, the Company believes that it will continue to incur
substantial operating losses for the foreseeable future and that the rate at
which such losses will be incurred may increase significantly from current
levels. Although the Company has experienced significant revenue growth in
recent periods, such growth rates are not sustainable and will decrease in the
future. In view of the rapidly evolving nature of the Company's business and its
limited operating history, the Company believes that period-to-period
comparisons of its operating results, including the Company's gross profit and
operating expenses as a percentage of net sales, are not necessarily meaningful
and should not be relied upon as an indication of future performance.
UNPREDICTABILITY OF FUTURE REVENUES; POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS; SEASONALITY. As a result of the Company's limited operating
history and the emerging nature of the markets in which it competes, the Company
is unable to accurately forecast its revenues. The Company's current and future
expense levels are based largely on its investment plans and estimates of future
revenues and are to a large extent fixed. Sales and operating results generally
depend on the volume of, timing of and ability to fulfill orders received, which
are difficult to forecast. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Accordingly,
any significant shortfall in revenues in relation to the Company's planned
expenditures would have an immediate adverse effect on the Company's business,
prospects, financial condition and results of operations. Further, as a
strategic response to changes in the competitive environment, the Company may
from time to time make certain pricing, service, marketing or acquisition
decisions that could have a material adverse effect on its business, prospects,
financial condition and results of operations. For example, the Company has
agreed in certain of its promotional arrangements with Internet aggregators to
make significant fixed payments. There can be no assurance that these
arrangements will generate adequate revenues to cover the associated
expenditures and any significant shortfall would have a material adverse effect
on the Company's financial condition and results of operations. See Note
4 -- "Commitments" of Notes to Financial Statements.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include (i) the Company's ability to retain existing
customers, attract new customers at a steady rate and maintain customer
satisfaction, (ii) the Company's ability to acquire product, to maintain
appropriate inventory levels and to manage fulfillment operations, (iii) the
Company's ability to maintain gross margins in its existing business and in
future product lines and markets, (iv) the development, announcement or
introduction of new sites, services and products by the Company and its
competitors, (v) price competition or higher wholesale prices in the industry,
(vi) the level of use of the Internet and online services and increasing
consumer acceptance of the Internet and other online services for the purchase
of consumer products such as those offered by the Company, (vii) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner, (viii) the level of traffic on the
Company's Web site, (ix) technical difficulties, system downtime or Internet
brownouts, (x) the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations and infrastructure,
(xi) the number of popular books introduced during the period, (xii) the level
of merchandise returns experienced by the Company, (xiii) governmental
regulation and taxation policies, (xiv) disruptions in service by common
carriers due to strikes or otherwise and (xv) general economic conditions and
economic conditions specific to the Internet, online commerce and the book
industry.
The Company expects that it will experience seasonality in its business,
reflecting a combination of seasonal fluctuations in Internet usage and
traditional retail seasonality patterns. Internet usage and the rate of Internet
growth may be expected to decline during the summer. Further, sales in the
traditional retail book industry are significantly higher in the fourth calendar
quarter of each year than in the preceding three quarters.
Due to the foregoing factors, in one or more future quarters the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the common stock would likely be
materially adversely affected.
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