One piece of Amazon-related news that we can discuss before getting the numbers is the fact that the company is now testing a new look for its homepage. I understand the new user interface is only being tested on a sporadic basis, so you may or may not see the new look when clicking the above link. For those who can't see it, it is a bit more "Yahoo!-like" in that the page is largely populated with text links and not much else. Gone are the tabs along the top, and the numerous product categories are now listed in the middle of the page.
This redesign really isn't a huge deal, but I do find it amazing how fast the company is able to "remodel" its store with little effort. In the future, it is not hard to imagine Web stores that are customized to user tastes as far as look and feel. In addition, I think it is easy to see how Amazon will be able to add links to its business partners like Drugstore.com (Nasdaq: DSCM) with this new design.
Of course, the big story of the day is Amazon's earnings and all the waterfall of information that came along with them. And the numbers are... (Drum roll please...)
Amazon.com quarterly earnings ($ millions, except EPS) Q4 1999 Q3 1999 Q4 1998 Sales 676.0 355.8 252.8 Gross Profit 87.8 70.5 53.4 Operating Income (273.8) (190.5) (39.7) Net Loss (323.2) (197.1) (46.4) EPS (0.96) (0.59) (0.15) Gross Margin 13.0% 19.8% 21.1% Operating Margin (40.5%) (53.5%) (15.7%) Net Margin (47.8%) (55.4%) (18.4%) Amazon full-year results ($ millions, except EPS) 1999 1998 1997 Sales 1639.8 609.8 147.8 Gross Profit 290.6 133.7 28.8 Operating Income (605.8) (109.1) (32.6) Net Loss (720.0) (124.5) (31.0) EPS (2.20) (0.42) (0.12) Gross Margin 17.7% 21.9% 19.5% Operating Margin (36.9%) (17.9%) (22.0%) Net Margin (43.9%) (20.4%) (21.0%)
My immediate gut reaction is that this is a mixed report of good and bad news, but the overall, long-term story is essentially unchanged. Amazon continues to invest in itself for the long haul, taking losses today in order to (hopefully) get a windfall of profits tomorrow. Let's take a quick look at some of the positives and negatives.
- The fourth quarter had sequential sales growth of over 90%. Any way you slice it, the growth is phenomenal.
- Amazon's books business is now a billion-dollar business. More importantly, it was profitable in the fourth quarter. Books should also be profitable for the entire year ahead.
- Amazon's customer total now exceeds 17 million. This makes Amazon's virtual real estate as valuable as ever.
- Q1 gross margin will improve to nearly 20%, and should continue to improve throughout the coming year.
- Customer acquisition costs are tops (lowest) in the e-commerce industry, nearly $29 per customer.
- Amazon said that the company should begin to see the benefits of its large scale in the coming year. They fully expect margins to improve dramatically through the year. Overall losses are expected to decrease as a percentage of sales throughout the year ahead, and the company believes it could end up near 5% toward the end of the year.
- Growth both within its existing product categories and in new categories is expected to be even faster in 2000 than what was seen in 1999.
- A personal observation from the conference call is that Amazon's management is extremely confident about the company's fortunes for the years ahead.
- Gross margin declined significantly in the fourth quarter, largely due to inventory write-offs. Even without these charges, gross margin would have been 18.8%.
- Marketing and sales costs were a bit higher in the fourth quarter, chewing up 26.5% of sales. Much of this increase is due to increased fulfillment costs, which is the cost of shipping and such.
- The gross size of Amazon's losses in both the quarter and for the year is quite shocking. A net loss of $323.2 million in the fourth quarter alone has to give one pause.
- First-quarter sales will be sequentially down from the fourth quarter. This is thanks to the seasonality of the company's new offerings.
The above observations are taken from the company's earnings release and from the conference call. For the complete earnings press release, click here. And for those interested in listening to a replay of the conference call, click here to hear all the juicy details.
I think if one is looking at the historical results of Amazon in isolation, the company looks pretty darn scary. However, if one is looking at where Amazon is currently positioned and what the positioning might bring down the road, it's hard not get excited about what the company can deliver in the years ahead. We're as excited as we've ever been to have Amazon here in the Rule Breaker portfolio.
Where will the company's stock end up tomorrow or the next day? I haven't the foggiest. We are long-term investors here at the Fool, and that means we really don't care. Plus, we have plenty of time to think about and digest the mountain of information put at our feet today. For further analysis of the company's earnings, swing by the Amazon message board. There, the discussion never ends.
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