Amazon is issuing new stock options to retain employees, getting paid by partners in devalued stock, and disappointing customers with accidental discounts. Could things get much worse for the Rule Breaker?
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Demonstrating the value of a good PR person, Amazon spokeswoman Patty Smith was quoted as saying the new options were granted "to take advantage of market conditions," and that, while this would have the effect of boosting morale, the real reason for the grant was to "reward employees for all the hard work they've been doing." However, with the stock falling below $30 last Monday, a 20-month low, the value of the options themselves is another question.
Stock as currency
Contributing to the decline in Amazon's stock is waning market enthusiasm for online companies, with Amazon being a poster child for the species. That status was no doubt reinforced when the company said many of its partners in the Amazon Commerce Network were issuing stock as payment for co-branding on Amazon's online mall, and for access to the company's customer base.
Like Amazon, many of these companies have seen their market valuations plummet since more heady days, including drugstore.com (Nasdaq: DSCM), down about 85% this year; HomeGrocer.com (Nasdaq: HOMG), off about 60%; and Pets.com (Nasdaq: IPET), in the dog house for losing 90% of its former market cap. In addition, Amazon was already an investor in these companies and is thus watching its stakes increase as their values decline. The company said that the combined loss for its stake in these companies adds up -- make that, adds down -- to $198 million.
For the second quarter, Amazon said that of the $24.3 million in payments from the Amazon Commerce Network, only $4.2 million was in cash. These payments account for most of the growth in Amazon's second-quarter gross profit margins; removing them from the equation would increase the reported operating loss. However, the company maintains that it is "driving toward profitability" in all its businesses "in the absence of the benefit of the commerce network."
Generous gremlins
Adding to Amazon's recent contribution to the image of the Internet economy as a house of cards designed by Rube Goldberg is word that many customers of its toy store were able to place orders for merchandise that was severely and incorrectly discounted courtesy of generous gremlins that snuck into the system during a routine catalog update.
Reports have merchandise being ordered -- and in some cases shipped -- for as little as 10% of its regular price. Other customers lucky enough to have placed these orders, but not quite lucky enough, have had their orders canceled. "We are very sorry to report that, due to an error on our Web site, the toys you ordered were incorrectly priced," the customer-centric company informed its now toyless customers via e-mail. "You will be receiving instructions on how to either complete your order with the corrected prices or cancel your order. We regret any inconvenience this error may have caused you."
Your Turn:
Are these turns of events just rough waters along the mighty Amazon? Is instant karma finally getting the Dotcom King? Are the tulips finally coming home to roost? Mix your own metaphors and share your thoughts on the Amazon discussion board.
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