[Briefing.com] More on Amazon.com...

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From: Linda (joelinda1@home.com)
Date: Fri Jul 28 2000 - 04:24:03 PDT

Slowing in top-line revenue growth suggests that Amazon.com may need to
spend *more* on marketing and promotion to drive revenues if it
is to continue it's "grow into profitability" strategy. So far
it has had six years of losses totalling 1.5 billion, with a still
unproven business model.




Amazon.com (AMZN) 30 3/8 -5 11/16: Six downgrades today, two more in the
past two days and it looks as though AMZN shares have finally found
some ground at the $30 level, below their previous 52-week low of
$32 15/32. Although Q2 expectations were already low due to a
seasonality, nobody expected revenues to come in at $578 mln, up only
a meager 1% from Q1. This marks the first time Amazon's revenues have
been so widely received as a disappointment; analysts were predicting
sales in the $585-$610 mln range. Investors used to focussing on
Amazon.com's top-line each quarter are now being asked to shift focus
to gross margins, an area that did show marked improvement, GMs of
23.5% were up 200 bp y/y and 120 bp sequentially.
The gross margin improvement reflects less promotional activity as
Amazon.com's competition crumbles and was also probably helped by
greater purchasing leverage. The "growth at any cost" mentality that
Amazon.com was known for seems to be less prevalent with each quarter
and CEO Jeff Bezos is finally talking about future profitability in
the conference calls,but none of the talk is capable of concealing
some troubling trends. First and foremost revenue growth is
dramatically slowing, especially in their core book, music and video
business. Their attempt to reduce marketing costs as a percentage
of sales is, as expected, resulting in dramatically slower
sales growth -- book, music and video sales grew only 38% y/y in Q2.
Fullfillment costs were down from 17% to 15% of sales, which helped
lower operating expenses to 54.8% of revenues, but frankly that rate
of improvement just isn't impressive. Inventories were essentially
unchanged from Q1, and there was concern last quarter that the levels
were too high and that number is sure to increase going into the
holidays. Amazon has a long way to go in improving their operating
efficiency in their low margin core business, and although new
business lines (such as electronics) are showing strength, management
once again failed to alleviate concerns that they are simply not
focussed on profitability. To wit, Bezos once again dodged the
question when asked to forecast a profitability date by
replying that he was too focussed on the second half to get into
specific details. Profitability is a detail? Interesting, we never
thought of it that way.

- Matt Gould, Briefing.com

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