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

To: tonyt who wrote (53585)	4/28/1999 9:40:00 PM
From: Rob S.	Respond to of 164684

Could be but a lot of people expected to happen now. They do have some other deals in the works according to the cc, and that could be used as partial justification for a split. Just watch - some anals will upgrade the AMZN so they can get their clients out.

To: tonyt who wrote (53585)	4/28/1999 10:13:00 PM
From: Glenn D. Rudolph	Respond to of 164684

Amazon.com – 27 April 1999 2 n Revenue When Amazon.com launched its auction service at the end of March, it said that its total customer base had increased to “more than 8 million.” Because we had been looking for the customer base to increase to only 7.4 million in the quarter, this prompted us to increase our revenue estimates for Q1 from $250 million to $290 million—an increase of 15% sequentially and a 230% year-over-year. We estimate that books will account for approximately $235 million, music $40 million, and videos and other $15 million (although we doubt that Amazon.com will break this out). We arrive at our estimate by multiplying our estimated total customer accounts (8 million, per the company's announcement at the end of March) by an average quarterly purchase per account of $36. The $36 represents a sequential decrease of $5 per account from December level of $41per account. This decrease is intended to account for Q1 seasonality and is almost identical to the decrease the company experienced last year. n Gross customer accounts We have adjusted our ending customer account estimate from 7.4 million to approximately 8.0 million, representing almost 1.8 million new customer additions in Q1. In Q3 and Q4, Amazon.com added 1.2 million and 1.7 million customers, respectively. n Gross margin We expect the gross margin to be flat sequentially at 21.2%. Our long-term aggressive growth scenario assumes that Amazon.com will gain leverage in the gross margin line over the next few years. Given the company's extraordinary revenue growth, however, gross margin as percentage of revenue is less important than absolute gross profit; we do not, therefore, believe it necessary for the company to achieve a specific gross margin every quarter. However, the gross margin is clearly an important point of analysis (the big fear here is that “margins will go to zero”), so it is important to understand the dynamics of the cost-of-goods-sold line. n Operating margin pre-goodwill We expect the operating loss as a percentage of revenue to increase 5 points to 13% as a result of increased investment in fulfillment infrastructure, new businesses, and customer service. In our opinion, the operating loss as a percentage of revenue is the single most important metric for determining whether Amazon.com is on track to turn a profit (as well as how big a profit). As the company introduces new product offerings, gross margin analysis becomes less meaningful, as it becomes harder to tell whether the company is gaining volume-based leverage (specific product categories have a wide range of profit margins). Amazon.com's fulfillment costs vary closely with revenue and are essentially a cost of revenue, but they are booked below the line--so to really understand the variable vs. fixed portions of the company's expenses, it is important to consider them. Amazon.com's operating loss as a percentage of revenue has decreased steadily over the last year, to an all-time low of 7.0% in Q4. However, in keeping with its stated strategy of focusing on long-term value creation rather than short-term bottom-line performance, management is significantly increasing its investment plans for 1999. As a result we have estimated Amazon's operating loss will more than double in Q1 1999 from Q4 1998. We expect this quarter's operating loss to increase to $39.8 million, or 13% of revenue. This would be by far the largest quarterly operating loss Amazon.com has had in terms of absolute dollars. Amazon's near-doubling of estimated fiscal year 1999 operating losses should provide plenty of ammo for skeptics who believe the company “will never make money.” However, we continue to believe that aggressive investment is the best plan for the future--a plan that, if successful, will lead to industry-leading profitability, market share, and market capitalization--but this belief clearly requires a lot of faith. n Marketing efficiency / customer acquisition cost A key metric for all online retailers is customer acquisition cost--the average number of marketing dollars spent to induce a new customer to buy something at the site. Amazon.com has been walloping the rest of the industry in this metric, and is currently averaging approximately $15- $20 in marketing spending per new customer. At some point, as the percentage of existing web users to new web users shifts more toward existing users (i.e., as soon as the growth rate of new Web users starts to slow), we expect that Amazon.com's customer acquisition costs will begin to trend higher. Until this happens, however, we believe the company is smart to spend as much as it can on marketing to try to win the loyalty of new Internet users before they shop somewhere else. As long as the customer acquisition cost remains stable, in other words, we do not care how much money Amazon.com spends on marketing—we hope that it spends as much as it can. We are estimating that the company's customer acquisition costs will increase in Q1, from $11 to $19 per customer (this also suggests that our customer estimate may be low).