Analysts are cheering AMZN's new Video/Gift stores. All have STRONG
BUY with $175 target! I will post several of them in the following
posts. Enjoy!!!
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05:27pm EST 17-Nov-98 BancBoston Robertson Stephens (Benjamin, Keith 415-693-3
AMZN: Attention Amazon Shoppers - Video and Holiday Gift Store... (Page 1 of 2)
November 17, 1998
A M A Z O N . C O M , I N C .
Attention Amazon Shoppers -- Video and Holiday Gift Stores are Now
Open. Maintain Buy.
Lauren Cooks Levitan (415) 693-3309 lauren_cooks_levitan@rsco.com
Keith E. Benjamin, CFA (415) 693-3285 keith_benjamin@rsco.com
BancBoston Robertson Stephens BancBoston Robertson Stephens
Key Points:
** Amazon.com's video store opened today with more than 60,000 videos and 2,000
DVD titles.
** The company's Holiday Gift store has also opened, expanding Amazon's product
offerings to include personal electronics, games, gadgets, and toys.
** New Gift-Click technology allows shoppers to buy and ship gifts with only
the recipient's e-mail address.
** These moves, in advance of the 1998 holiday season, give us further
confidence that Amazon.com has substantial potential to exceed our current
Q4 revenue and registered user growth assumptions.
** With a significantly expanded product assortment, we expect Amazon.com to
benefit disproportionately from increased penetration of online shopping
this holiday season. Thus, despite the recent gains in the stock, we
continue to maintain our Buy rating and view Amazon.com as a core e-tailing
holding.
SUMMARY: Amazon.com announced the opening of its newest product category, an
online video store. While Amazon.com did offer video titles prior to today, the
new store offers similar search features and editorial comments to the Books
and Music stores. The current product offering includes more than 60,000
theatrical and general-interest videos and more than 2,000 DVD titles at a
discount of up to 30% off. Amazon's selection is nearly seven times larger than
the typical brick-and-mortar video retailer and the company stocks the Web's
largest selection of titles available for shipping within 24 hours. Amazon's
video store leverages the content the company acquired with the April 1998
purchase of Internet Movie Database.
Amazon also announced the launch of a Holiday Gift store, offering books,
music, videos, personal electronics, games, gadgets, and toys for all ages. We
estimate that approximately 1,000 new SKUs were added beyond Amazon's core
products of books, music, and videos. Shoppers can browse the product
categories, or use Amazon's Gift Matcher service, which suggests gifts based on
personal interests. The store also offers gift certificates that can be sent
via regular mail or via instant e-mail, which are sent within the hour. The
seasonal gift store will remain open through the holidays.
In conjunction with the Holiday Gift store opening, Amazon introduced a new
feature called Gift-Click, which works in all four of the Web site's stores.
Gift-Click allows shoppers to purchase, select gift-wrap, and send the gift
with only the recipient's email address. Once the order is processed, shoppers
have 90 minutes to add other items to be sent in one email notification to the
recipient, who is asked to respond to Amazon with their mailing address
information.
BUSINESS IMPACT: We view Amazon's video store as a natural extension to its
core books and music stores. We expect Amazon to attract new customers from
other video e-tailers such as Reel.com and grow sales from its existing
customer base of over 4 million people. Similar to their recent Q3:98 success
with music store sales, we would not be surprised to see Amazon's video sales
quickly eclipse those of the leading video e-tailers.
The company's new Holiday Gift store represents the first significant (albeit
anticipated) shift in Amazon's product offering from media (books, music, and
videos). We note that given the varied distribution scenarios of the products
being offered, Amazon has built inventory to quickly accommodate customer
orders. While this situation increases the company's inventory risk, we
believe the current gift assortment is sufficiently limited to minimize this
risk. Unlike in the company's core book area where depth of assortment is
critical, it appears to us that the company has focused on core, fast-turning
items in each product category on the gift site. Surely customers can find more
choices if shopping at more niche-focused e-tailing specialty stores; however,
we view the edited collections on the Amazon gift site as adequate enough to
help the company gain incremental gift purchases without sacrificing margins.
Management describes the store as a seasonal store and has made no comment on
plans for the gift store after the holiday season. We expect the gift area will
evolve into a permanent fixture on Amazon's Web site and believe it can be used
to test new product categories in the future.
The new Gift-Click feature is another positive step making online shopping more
convenient. We decided to test the new feature and ordered a book for one of
our research team members. As we were writing this, the recipient received
notification that a gift had been ordered for him with a personalized message
from the sender. Clicking on the URL link in the email opened a Web page where
we were prompted to enter our mailing address information. We believe this type
of innovation helps differentiate Amazon from their competition and fuels
continued customer loyalty.
Now that the company has launched its video and gift stores, we wonder what
categories Amazon.com will offer next in its goal to be the shopping hub of the
online world. We would not be surprised if potential future categories were
based on a different model where Amazon.com received a lead fee for referring
its customers to other sites to make purchases. This would enable the company
to leverage its customer base and Junglee acquisition without building
incremental inventory to accommodate each additional product or service
category.
INVESTMENT IMPACT: We expect the stock to react positively to this news and
will continue to hang on. We have resisted the temptation to fight the tape
short-term given we continue to believe strongly that our current estimates and
price targets are woefully conservative forAmazon.com. We still believe that
dramatic increases in online shopping this holiday season could drive the stock
even higher, particularly now that the company has shown the world its next
step in its plan to broaden its reach as the dominant e-tailer. While
Amazon.com appears near the top of its trading range, we believe additional
news and retail investor enthusiasm could drive further appreciation. We note
Amazon.com has been stubborn before and would continue to maintain it as a core
holding. We watch Amazon.com's stock with awe and wonder about its brand power
as indicated by its customer account growth. When you think of shopping on
line, don't you think of Amazon.com first? Do you believe 10 or 20 million
people might buy a book or a CD or something else from Amazon.com by 2001? The
leverage on an incremental 5 or 10 million people and/or another $20 in revenue
per person can provide geometric EPS increases in a few years. As such, we are
not giving up on our Buy rating.
THE COMPANY: Amazon.com, Inc. is a leading on-line provider of books and music
via its Web site, Amazon.com. Amazon.com has established itself as a well-known
Internet brand. The company currently offers more than 3 million books, CDs,
videos, DVDs, audio books, computer games, and other titles, at competitive
prices. Amazon.com's marketing focuses on its ability to allow browsing and
buying of a much greater quantity of books, CDs, and videos than could be shown
in the largest retail stores. Amazon.com's growing popularity seems more a
function of the convenience of on-line shopping, in our view. We believe
Amazon.com will try to exploit its growing base of loyal buyers to other
merchandise categories, such as music and video.
INVESTMENT THESIS: THESIS: WE BELIEVE AMAZON.COM IS WELL POSITIONED TO
TAKE ADVANTAGE OF THE INTERNET AS A NEW MEDIUM FOR MARKETING AND
COMMERCE. WE BELIEVE THE COMPANY HAS ALREADY ESTABLISHED ITSELF AS ONE
OF THE FIRST, LEADING ON-LINE MERCHANTS. |
