Amazon Flexes Its Retailing Muscles
The Age
Thursday January 24, 2002
Miracles do happen. Amazon.com, the world's biggest and most expensive bookseller, has finally made a profit after burning nearly $US3 billion ($A5.78 billion) since it set up as an online-only superstore in 1997.
Based in Seattle, Amazon.com set the global standard for Internet retailing. It grew hugely, moving from books to toys, games, health and beauty products, kitchen gadgets and even a baby registry, assembling an enormous database of worldwide customers. But it could not make money, until now.
One quarter's trip into the black does not mean a bonanza, but Wall Street seems to think that the one-cent-a-share fourth-quarter profit Amazon has just turned in justifies some confidence.
The shares soared 22 per cent yesterday, gaining $US2.45 on last Friday's closing price of $US10.16. More than 28 million shares were traded in little more than an hour when the Nasdaq market opened after the Martin Luther King national holiday in the US on Monday. Normal volumes are around 11 million.
At its current market capitalisation, plus debt of $US2.15billion, Amazon.com is trading at 233 times this year's expected cashflow. The net profit just announced included a $US16million currency gain related to euro-denominated debt. Amazon stock has traded as high as $US22.38 and as low as $US5.51 in the past 12 months.
Despite market activity likened by some to the dinner party thrown for the return of the prodigal son, the profit is remarkable more for its appearance than its size. On record revenue of $US1.12 billion, the net was just $US5 million, but better than the year-ago loss of $US545 million or $US1.35 a share.
Much of the optimism arose from the rate of revenue growth reported in the quarter, up by 15per cent from the fourth-quarter 2000 figure of $US972million - three times faster than Wall Street analysts had expected. Deutsche Bank Alex Brown analyst Jeetil Patel was quoted in US reports as saying the result was ``overwhelmingly strong, indicating they are now a global e-commerce player".
``The model has now been finetuned to the point we are seeing a balance of growth and profitability," said Mr Patel.
While the net profit figure counted with shareholders, the analysts were watching what they called the pro forma net profit, which includes interest but excludes other costs. That turned up at $US35 million, or nine US cents a share, in the black - from a loss of $US90 million, or 25 US cents a share, in the red on the same basis last year. The analysts had estimated between four and eight US cents.
Amazon chief financial officer Warren Jenson said in a media conference that the company had ``exceeded expectations on virtually every line of our income statement". Translated, that meant a big effort was made to cut costs and boost productivity or, as Mr Jenson put it, the company motto moved from ``get big fast" to ``get the crap out".
Jeff Bezos, founder and chief executive of the company many still feel is a bellwether for the future of e-commerce, said he expected sales to grow between 11and 18 per cent to between $US775 million and $US825million in the current quarter, the first of the 2002 fiscal year, producing on the oft-questioned pro forma basis a result of between break-even and a loss of $US16 million. Full-year revenues should grow by about 10per cent, he said.
Mr Bezos said Amazon's goal was to generate operating cashflow for the full year. That would be difficult and ``there are no guarantees", he said.
Sales of the core lines - books, CDs and videos - fell 12 per cent in the early part of the year but recovered half that loss in the final quarter. Electronics, kitchen equipment and tools, which once showed double-digit growth, fell 2per cent. But international sales rose by 81 per cent.
One of the problems faced by Amazon and other e-commerce retailers is the cost of fulfilment.
Internet buyers generally expect to pay less than they would in a bricks-and-mortar shop, and also bridle at freight costs. Thus, said Mr Bezos, one of the marketing ploys for the coming year would be to offer free, or greatly reduced, shipping charges.
© 2002 The Age