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

To: GST who wrote (37884)	2/2/1999 12:49:00 PM
From: Teri Stephenson	Read Replies (2) \| Respond to of 164684

Briefing's analysis of AMZN's presentation at NationsBanc Montgomery Securities Tech Conference(sorry if already posted): Amazon.com (AMZN) Packed presentation, given by Joy Covey, CFO. One of the few women presenters at investor conference, her style is remarkably calm and confident, even when making incredibly bold statement about Amazon.com's future. We've seen her present before and she did another polished job today. •Single overall message: We've only scratched the surface of what we can do on the Internet. (Meaning both Amazon.com and the Internet in society. •Total market for books/video/music in 1996 was $140 billion in 1996, before the internet. (Implied is that the internet penetration of this market has a long way to go. Amazon.com annual revenue run rate is now almost $1 billion, assuming current growth rates) •January sales were less than December's, but still expect Q1 to be sequentially higher than Q4. Nevertheless, stated "long term caution" is advised on growth. •4.7 million new customers in the last 12 months •Showed slide with revenue versus CDNow, N2K, and barnesandnoble.com. Amazon's is so far ahead of the others, the other lines barely make it off the X-axis. "This may be the last time you see this slide" said Ms. Covey, implying it is no longer a meaningful comparison. •Scale, scale, scale: size matters on the internet. Amazon.com has the best economy of scale. Illustrated with a chart comparing Sales and Marketing as percentage of revenue: CompanySales & Marketing Percent of RevenueAmazon.com19%CDNow93%N2K135%barnes&noble.com158%•Amazon.com, after closing recent convertible bond offering, will have $1.5 billion in cash •Claimed that US based books business unit was profitable •ProForma operating loss now at (8%), up from (35%) in Q4 96. However, upfront investments in new technology will keep them from profitability in near future •Gross Margin down to 21.1% from 22.7% in MRQ (most recent quarter). Stressed that investors should focus on Gross Margin dollars, not the percentage, because more dollars helps build economy of scale. •Capital management is Amazon.com's greatest strength: because they pay supplier 36 days after shipping, they actually have negative invested capital run rate. Total invested capital is $33 million. Working Capital continues to grow at great rate because of this arrangement. Briefing.com summary: Still amazing people with incredible revenue growth, Amazon.com is only recently attracting institutional investors of any size. The model is good, but pricing pressures in Q4 are a problem for investors. Ms. Covey knows this, and tries to fend off questions with the "focus on gross dollars not gross margin" argument. This argument tends to reinforce the "We will grow forever" point of view, because a chart of the gross margin dollars will just keep going up if revenues keep climbing, even if the gross margin percentage declines. Revenues are the key metric for Amazon.com. The valuation of Amazon.com implies a continued upward growth in revenues of incredible size. The comment by Ms. Covey, seemingly casual, that January revenues were lower than December is more revealing than at first glance. First, companies do not have to reveal monthly revenue figures, particularly a month that finished the day before. But along with Ms. Covey's "long term caution" comment on revenue growth, it looks like the beginning of preparing analysts for a revenue growth slowdown. Briefing.com now believes that the Q1 revenue number for Amazon.com may be the single most important number for Internet stocks. If it comes in flat, or, previously unthinkable, declines sequentially, it will be the first indication of how big the Internet may well be. Currently, all internet stock valuations essentially assume that we are a long, long way from reaching the potential. If Amazon.com revenue's ever flatten, it will be a signal that we are closer to the potential than we think. Either way, Amazon.com's Q1 revenue numbers should be watched closely. Briefing.com finds it particularly interesting that Ms. Covey felt compelled to mention them at all.