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To: John May who wrote (10425)	7/15/1998 9:52:00 AM
From: tonyt	Read Replies (1) \| Respond to of 164684

I guess we'll see in 7 days :-)

To: John May who wrote (10425)	7/15/1998 12:34:00 PM
From: John Ke	Read Replies (2) \| Respond to of 164684

Tell me where I'm off the mark. We'll only know if you're off the mark next week. Analysts are expecting a decrease in gross margin as you calculated. Expansion into music, and 'assosiates' fees increasing COGS are the main culprits. Only time will tell, but I think 20% is a bit low for this quarter. The main reason analysts are bumping up their loss estimates is the added SG&A due to the expansion into music and total overall expansion of operations. They have hired a tremendous number of employees over the last six months, and these are not one-off expenses. Advertising as a percentage of sales is also expected to increase. So overall, SG&A as a percentage of sales is expected to increase for the first time since 2Q97. Also the average sales expectation for the quarter is probably around $110 mil. As SG&A percentage of sales is higher than gross margin, any higher sales expectation will bring with it higher loss expectations. Kind of anti-intuitive, but true. Anyway, this is why you are calculating less of a loss than consensus. Advertising is the real wild card. There's no way for analysts to know how much it's increased. I hope this helps, John