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

To: H James Morris who wrote (46720)	3/22/1999 7:47:00 AM
From: MoonBrother	Read Replies (1) \| Respond to of 164684

BancBoston Robertson Stephens Analyst Keith Benjamin's Another Reiteration of STRONG BUY. Enjoy! -------------------------------------- 01:46am EST 22-Mar-99 BancBoston Robertson Stephens (Benjamin, Keith 415-693-3 AMZN: Business Trends Continue to Look Positive; Reiterate Str... March 22, 1999 A M A Z O N . C O M , I N C . Business Trends Continue to Look Positive; Reiterate Strong Buy. Keith E. Benjamin, CFA (415) 693-3285 keith_benjamin@rsco.com Lauren Cooks Levitan (415) 693-3309 lauren_cooks_levitan@rsco.com BancBoston Robertson Stephens BancBoston Robertson Stephens AMAZON.COM, Inc. AMZN $135 1/16 3/22/99 Key Points: We believe Amazon.com's business momentum remains solid during Q1. During February, Amazon was once again a top e-tailing site with over 8.6 million unique visitors. Strong January and February usage and reach statistics provide us with further indication that Amazon is on track to at least achieve our Q1 sales estimate of $260.0 million which assumes modest 2.8% sequential growth. With an expanding range of products available at Amazon.com, we believe the company's existing customer base of over 6.2 million customers is spending more per capita. ** We continue to rate the shares Strong Buy given increased evidence of Amazon's expanding e-tailing leadership and corresponding ability to grow into its valuation. SUMMARY: We believe Amazon.com's business momentum remains solid during Q1. Recently released MediaMetrix data indicate that Amazon continues to be the greatest beneficiary of changing shopping patterns favoring e-tailers. Specifically, during January and February, Amazon had 9.033 million and 8.669 million unique visitors, respectively, versus 9.134 million users during December 1998. This reflects a Q1 run rate of approximately 26.4 million unique users, a 12% increase versus 23.5 million unique users during Q4. During February, Amazon was once again a top e-tailing site with over 8.6 million unique visitors. In our view, these solid visitor trends, which reflect a slight sequential decline from January's unique users of 9 million, demonstrate Amazon's ability to attract new customers while retaining the customers it gained during Q4. While the number of unique users does not equate directly to sales (given varying trends in the percentage of visitors that make purchases and their average transaction size), we view the metric as a good proxy for the sales potential of an e-tailer. We are also impressed by Amazon's reach relative to all shopping and other Web sites. As shown above, roughly 15% of all Web users consistently visit Amazon and roughly 23% of all on-line shoppers visit their site. We view this substantial share as further evidence that Amazon is evolving into the first e- tail portal. Further, shopping has clearly emerged as a major on-line activity with over 60% of all Web users consistently visiting one or more shopping sites. IMPACT ON BUSINESS: Strong January and February usage and reach statistics provide us with further indication that Amazon is on track to at least achieve our Q1 sales estimate of $260.0 million which assumes modest 2.8% sequential growth. Despite recent investor concerns, we remain confident that the company's Q1 sales results will show sequential growth. Our model assumes roughly 3% sequential revenue growth from the seasonally strong December quarter. Based on strong subscriber growth already reported thus far in the quarter at AOL, we expect Amazon could similarly post customer growth in Q1. Given Amazon's historically high level of repeat purchases and a trend towards higher spending per person, we believe these factors should be enough to support revenue growth for the quarter. We note that even if Amazon's number of unique visitors in March were to decline by 5% sequentially (albeit highly unlikely), the company's total number of unique visitors for the quarter would be 10% higher than last quarter. We further note that we have recently seen a greater volatility in the month-to- month changes in reach for competitor barnesandnoble.com (reach decreased 24.7% for the same period from 7.8% in January to 5.8% in February), which we believe has greater exposure to retail seasonality than Amazon with its greater product diversification and evolving business model into an e-tail portal. With an expanding range of products available at Amazon.com, we believe the company's existing customer base of over 6.2 million customers is spending more per capita. We view Amazon as the most visible e-tailing brand with over 6.2 million loyal customers and an increasing range of product categories addressed. We expect these advantages to become even more meaningful as the company continues to make infrastructure investments to provide better customer service. In our opinion, these factors should result in Amazon being the disproportionate beneficiary of increased penetration of on-line shopping. We estimate the average Amazon customer spent roughly $98 in 1998. Our forward estimates conservatively assume $122 in spending per customer in 1999, growing to $135 by 2002. Given Amazon's strong brand, loyal customer base, and increasing penetration of Web shopping, we would not be surprised if average spending doubles or even triples by that time. We note that our estimates reflect growth in Amazon's impressive e-tail business, but not yet its expanding rental revenues which we believe could represent considerable upside to our current estimates. INVESTMENT IMPACT: Amazon shares are currently trading at $135 1/16, or 33% below recent highs. We believe recent concerns regarding Amazon's post-Christmas business trends and the company's ability to successfully compete with the aggressive pricing strategies of other e-tailers will prove unfounded. We are encouraged by the February MediaMetrix data which reflect Amazon's continued e-tail leadership and recommend purchase of the shares in advance of what we expect will be strong Q1 results. Further evidence of sequential revenue growth in Q1 coupled with the company's recent investment in Drugstore.com point toward Amazon's evolution into a true e-tail portal. We continue to rate the shares Strong Buy given increased evidence of Amazon's expanding e-tailing leadership and corresponding ability to grow into its valuation. THE COMPANY: Amazon.com, Inc. is a leading on-line provider of books and music CDs via its Web site, Amazon.com. Amazon.com has established itself as a well- known Internet brand. The company currently offers more than 4.7 million books, music CDs, videos, DVDs, 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 and other media than could be shown in the largest book and related 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 through expansion of its Web site and product offerings. INVESTMENT 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. INVESTMENT RISKS: Among the risks are (1) the rapidly emerging market with no earnings validation of the Internet as an effective commerce medium; (2) an extremely competitive landscape, including other on-line bookstores and new entrants and on-line service companies; (3) competitive price pressure; (4) inventory risks associated with new strategy of buying directly from publishers and maintaining increased physical inventory in warehouses; (5) significant payments for placement leading Web networks; and (6) probability of significant losses for at least the next few years.