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

To: Dell-icious who wrote (14244)	8/21/1998 12:36:00 PM
From: e. boolean	Respond to of 164684

I thought the AMZN advantage was that their overhead was so very low, i.e. almost all costs would be variable and properly assignable to sales. Can you explain where you see them realizing economies of scale for those high costs per sale? Of course, one could argue that more costs should be assigned to the new customers than the old ones, meaning that instead of making $8 per new order and losing $10 per repeat order, you could say that they make, say, $4 per new order and lose $5 per repeat order (with 63% being repeat orders this last quarter.) I still don't see the advantage, but I'd appreciate comment from anyone who does. e.b. >>Sandeep Junnarkar Staff Writer, CNET NEWS.COM August 20, 1998, 4:50 p.m. PT update Amazon.com must generate $1 billion in annual sales simply to break even, according to a new study by e-commerce consulting firm IceGroup. After studying Amazon.com's second-quarter 1998 financial results, IceGroup concluded that one of the main barriers to profitability the company faces is its high operating margins. The study, called "Amazon.com: Prototype of a New Millennium Company?" points out that most computer users believe--incorrectly--that online merchandise orders are cheaper to process than those placed through traditional distribution channels. "Taking a closer look at Amazon's numbers reveals a complex, new-millennium business problem," the study states. "Based on the numbers provided, Amazon.com's average order costs the company $40.81 to process, yet its average order size is $35.59--essentially creating a loss of $5.22 for each Amazon.com order processed." But Terry McCrary, an analyst who follows Amazon.com for Waldron & Company, disagreed with that analysis. "They must be putting all kinds of overheads into that figure," he said. "That is not an accurate allocation of those expenditures." The report calculated the average order cost by dividing the $16.99 million quarterly operational loss by 3.26 million orders, resulting in a loss per order of about $5.22. That figure then was added to the average order price of $35.59, resulting in the $40.80 figure for the company's average cost to process an order... Amazon.com currently makes "$8 per new order while losing $10 per repeat order," the study said, adding that the company either must increase revenue per repeat customer or reduce the average cost per sale going forward. While Amazon.com has expanded its product offerings to include music and video, the diversification may not translate into higher sales, according to the IceGroup study. Instead, it suggested, the company should focus its efforts on reducing its cost per transaction... Finally, the study concluded, if Amazon is able to significantly reduce its cost per transaction, the company won't need to generate $1 billion in sales to reach profitability." news.com