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   Strategies & Market TrendsAMAZON.COM RIDICULOUSLY OVERVALUED BY ANY MODEL (AMZN)


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To: Nikole Wollerstein who wrote (158)1/1/1999 6:40:00 AM
From: Dale Baker
   of 182
 
Any investment that goes to zero must eventually be declared "substantially worthless" to the IRS to declare your loss or (short) gain. No free lunch with Uncle Sam.

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To: Dale Baker who wrote (159)7/31/1999 1:41:00 AM
From: Bilow
   of 182
 
Hi Dale Baker; We'd make an occasional post to this thread or it will go to the SI graveyard...

-- Carl

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To: Bilow who wrote (160)7/31/1999 2:54:00 AM
From: Dale Baker
   of 182
 
I'm holding August 90 puts on AMZN at the moment. No consensus out there if AMZN is just resting or it is terminally overvalued at these prices.

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To: Dale Baker who wrote (161)7/31/1999 3:09:00 AM
From: Bilow
   of 182
 
Hi Dale Baker; No question that AMZN is terminally overvalued at these prices. The question is what is going to happen before those Aug puts of yours expire...

I am of two minds on AMZN. I know that the fundamentals say this company is going to single digits within two years, possibly delisting in five years. I know that the securities analysts have performed the same (or similar) calculations I have, regarding the growth rate of AMZN's revenues, and have concluded that their story is broken. From this I conclude that there will be plenty of short sellers available on up ticks.

But since the earnings report took 30% off this stock, it has seemed quite strong to me. I'm short, and quite profitable, so I guess I should quit with my gloom. On the other hand, assuming that there is only one fool born each minute is not a safe play in this bubble.

I guess I would suggest shorting over buying puts for the following reasons:

(1) Shorts have better liquidity than options,
(2) and lower spreads,
(3) and no decaying time premiums,
(4) and are available in odd lots,
(5) and you collect interest on the cash.

With shorts, you can make money (on the interest) even if you eventually buy the stock back at the same price. (Which is, of course, why the stock index futures {especially far out contracts} always trade at a premium to the underlying stocks.)

The one advantage that options have is their ability to have higher leverage (like when you buy those deep out of the money short term puts), but this almost inevitably causes traders to overtrade them. In other words, options are hazardous to most trader's health.

But best of luck to you. (And me as well.)

-- Carl

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To: Bilow who wrote (162)7/31/1999 3:22:00 AM
From: Dale Baker
   of 182
 
The reason I don't short Internuts like AMZN is that I could go out for the afternoon and come back to find myself behind 10 - 15 points for no particular reason. My puts can only lose $3.75.

Setting stops in an Internut short limits the damage but then makes you prone to whipsaws in volatile stocks.

My pockets aren't deep enough to short a stock at this level and just hang on.

Good luck.

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To: Dale Baker who wrote (163)7/31/1999 2:16:00 PM
From: Bilow
   of 182
 
Hi Dale Baker; Long mathematical note on the
quarterly revenue series for AMZN, and why I will
be able to cover my short in the single digits
(though I'm more inclined to wait until chapter
11.)

The problem with figuring out the value of AMZN
is that AMZN is a story stock. A story
stock is one that is expected to do great things
at some time in the future, but not in the present.
Story stocks bleed money in the present, but they
have some story that explains why they
should be highly profitable in the future.

The AMZN story is that the current losses are of
no great importance, and that they are instead
building a market. What is important, instead,
is the growth rate in the revenue of the company.
I, and most of the other shorts on this thread,
believe that the growth of AMZN is a lot closer
to being finished than the longs, and that the
recent quarter's results are supportive of our
belief. There has been some suggestion on this
thread that AMZN's recent quarter's results were
not really comparable to the previous quarter's
reseults due to seasonality. The purpose of this
note is to analyze AMZN's revenue numbers with
this caveat in mind. In other words, I am going
to look at the revenue series in ways that will
eliminate seasonality effects.

Raw data is from Wall Street City:

HISTORICAL QUARTERLY RESULTS
REVENUE
(Thousands of U.S. Dollars)
1996 1997 1998 1999
1st Qtr MAR 875 16,005 87,361 293,643
2nd Qtr JUN 2,230 27,855 116,044 314,377*
3rd Qtr SEP 4,173 37,887 153,698
4th Qtr DEC 8,468 66,040 252,893

tscn.com
Seasonality suggests that quarterly results should
only be compared with the same type of quarter,
typically that of the year before. One could suppose
a "strong seasonality" - that the four seasons were
completely independent, and have growth rates that
are incomparable. This might be the case if the
public is celebrating Christmas less and less, for
instance. I will instead assume "weak seasonality"
- that more business tends to be done in certain
quarters, and that the amount of business done in
one quarter tends to be some (fixed) multiple of
the business done in another quarter, all other
things being equal. This is more or less the meaning
of seasonality as used by the Federal Reserve, when
it gives "seasonally adjusted" figures. I will also
assume that the seasonality of AMZN's business has
stayed constant and will remain so. I am hoping for
comments on these assumptions. Hope springs eternal
in the human breast, but don't marry a stock...

AMZN has been growing so quickly that until the most
recent quarter, seasonality has been hidden by the
huge secular revenue growth rate. The AMZN longs
would have us look only at the year over year
figures, which are still great, but this puts an
investor into a precarious position. Under this
restriction, if AMZN quit growing right this quarter,
we wouldn't be able to detect it until about a year
from now. In the event that other investors were not
so stupid, we would end up in a situation where we
might have to sell our shares after everybody
else... Somebody recently posted a comment about
stock that I liked: The first rule in investing
is don't panic. The second rule, is that if you
must panic, do it before everybody else.
So
what I am doing here is showing a way of looking
at the quarterly numbers in such a way as to detect
a reduction in the growth rate without having to
compare consecutive quarter's growth rate, but also
without having to wait for the full year data lag.

The first thing to do is to convert the above raw data
into a table of data that shows quarter over previous
year's quarter growth rates. This is what the longs
would have you do with this data, but on a company
who's growth rate is rapidly dropping, this estimate
of the growth rate will be way too high. This is
because the year over year figures include 4 quarters
of growth rate, only one of which is the latest and
most cogent.

I've added two columns of calculated numbers to the
usual Yearly Increase figures:

AMZN Growth Rates:

Yearly Growth
Date Revenue Increase Change Lossage
---- -------- -------- ------ -------
Q96 875
2Q96 2230
3Q96 4173
4Q96 8468
1Q97 16005 1729%
2Q97 27855 1150% -579% -33%
3Q97 37887 808% -342% -30%
4Q97 66040 680% -128% -16%
1Q98 87361 446% -234% -34%
2Q98 116044 317% -129% -29%
3Q98 153698 306% -11% -3%
4Q98 252893 283% -23% -8%
1Q99 293643 236% -47% -17%
2Q99 314377 171% -65% -28%

In the above table, the Yearly increase is
the revenue rate of increase from the same quarter,
previous year. These figures, since they compare
similar quarters, are seasonally adjusted. If
seasonality consists of certain quarters having a
larger proportion of business than others, than that
ratio will divide out. The resulting series labelled
Yearly Increase are therefore seasonality free,
and can be manipulated on a quarter to quarter basis.
The fact that these Yearly Increase numbers
form a beautifully smooth series is an indication
that the seasonality has been removed from them.
The first manipulation is to take the differences
between consecutive Yearly Increase rates.
The Change column does just that. The Change
figures have a secular tendency to decrease considerably
in magnitude, and that means that they are hard to
estimate for future quarters. A nicer data series is
the Growth Lossage, which is the percentage
change in the Yearly Increase taken from
consecutive quarters.

As an aid to those wishing to put all this into a
spread sheet, so they can modify the assumptions
and compute their own growth rates (just like those
highly paid securities analysts who are currently
bailing out of this stock), here are some sample
calculations for 2Q99:
Yearly Increase: ((314377 / 116044) - 1) * 100 = 171
Change: 171 - 236 = -65
Growth Lossage: (65 / 236) * 100 = 28

Examining the above table, it is perhaps surprising
that AMZN's year over year growth rate has done
nothing but decrease. That is, all the entries in
the Change column are negative. Another way
of putting this is to say that AMZN's growth rate has
been decreasing - they are growing slower with each
passing quarter.

The second thing to notice is that between 2Q97 and
3Q98, AMZN's rate of growth loss was decreasing. That
is, AMZN seemed to be coming closer and closer to
maintaining a high growth rate. This peaked in 3Q98,
which had a 306% growth rate, just a little less than
2Q98's 317% growth rate.

The final thing to notice is that in 4Q98 between 2Q99,
AMZN's loss in growth rate has again accelerated. By
looking at the Growth Lossage numbers, it is
clear that what actually happened is that for 3Q98 to
4Q98 AMZN had an unusually low loss in growth rate.
I believe that this is due to the high level of
advertising done by AMZN during those quarters. With
the recent quarter's results, the return to a
historical loss in growth rate of around 23% per
quarter is clear.

Now that we have a reasonable handle on the revenue
series, we can do some extrapolation into the future,
and get some estimates as to what AMZN is really
worth today...

AMZN Growth Rates 3Q99 &c. extrapolated:

Yearly Growth
Date Revenue Increase Change Lossage
---- -------- -------- ------ -------
Q96 875
2Q96 2230
3Q96 4173
4Q96 8468
1Q97 16005 1729%
2Q97 27855 1150% -579% -33%
3Q97 37887 808% -342% -30%
4Q97 66040 680% -128% -16%
1Q98 87361 446% -234% -34%
2Q98 116044 317% -129% -29%
3Q98 153698 306% -11% -3%
4Q98 252893 283% -23% -8%
1Q99 293643 236% -47% -17%
2Q99 314377 171% -65% -28%

3Q99 356579 132% -39% -23%
4Q99 508314 101% -31% -23%
1Q00 522684 78% -23% -23%
2Q00 503003 60% -18% -23%
3Q00 520605 46% -14% -23%
4Q00 705623 35% -11% -23%

So by 4Q00, I am looking at a company with a year
over year growth rate of around 35%, and sales of
something like $2.25B ttm. This is a little over
twice AMZN's current ttm sales.

AMZN is a retailer, and the industry average profit
margin (according to the above link) is 3.21%. I
really don't think sales of $2.25B will be enough to
make AMZN profitable, particularly since the trend
in profitability (which I will do an analysis of later)
has turned so amazingly negative, but if they
could achieve this level of profitability it would be
$72MM per year. Given a revenue growth rate, at that
time, of 35% per year, the stock market might put a
multiple on these profits of 35, for a market cap of
$2.5B. The current shares outstanding number is 162MM,
but AMZN is leaking more shares out at a rate of
something like 11% per year, so I will assume 180MM
shares. This gives a stock value of $2.5B/180MM =
$14 per share. Of course there is going to be a 2
for 1 split in a few months, so the actual stock
value would be likely in single digits. Remember
that 18 months is not very long from now.

Given a value of $14 per share 18 months in the future,
the current value would be somewhat less, depend on
the risk adjusted rate of return. Given AMZN's
incredibly high volatility, (and losses) I would be
amazed if people were buying this stock with an
expectation of a return of less than 20% per year.
Eighteen months of 20% to get to $14 gives a current
"fair" value of AMZN of around $10 5/8. Of course
the upcoming split takes this value well into single
digits.

The other question is whether or not AMZN will be
able to post profits with sales of only about twice
their current annual sales. I suggest not, but
will do more analysis of this later.

-- Carl

P.S. If you wish to risk $375 going short AMZN, and you
are worried about, say 30 point moves going against you,
you can always short 10 shares.

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To: Bilow who wrote (164)7/31/1999 11:10:00 PM
From: Bilow
   of 182
 
Before this most recent quarter's report, The Motley Fool
(TMF) had this to say regarding AMZN's likely fourth
quarter results:

In the past three years, quarter four revenue averaged
over three times that of quarter one revenue. If this holds
true, quarter four revenue alone could top $850 million this
year.

fool.com

Now that we have 2Q results, it is probably time to update
this calculation. First of all the data:

HISTORICAL QUARTERLY RESULTS
REVENUE
(Thousands of U.S. Dollars)
1996 1997 1998 1999
1st Qtr MAR 875 16,005 87,361 293,643
2nd Qtr JUN 2,230 27,855 116,044 314,377*
3rd Qtr SEP 4,173 37,887 153,698
4th Qtr DEC 8,468 66,040 252,893

tscn.com

Sums over all quarters, 1996 to 1998, are as follows:
1st Qtr MAR 104241
2nd Qtr JUN 146129
3rd Qtr SEP 195758
4th Qtr DEC 327401

The ratio 4Q/1Q = 3.14, slightly over 3, as suggested by the
fools. Given 1Q99's revenue of $293MM, applying this multiple
would give results for 4Q99 of $1028MM. This is in excess of
the $850MM that TMF estimated, because they rounded 3.14 to 3
in their calculation.

The ratio 3Q/1Q = 2.24, naturally smaller. Given 2Q99's revenue
of $314MM, applying this multiple would give estimated results
for 4Q99 of $704MM. Rounding 2.24 to 2, as TMF did in their
calculation, gives a revenue estimate of $630MM.

I should note that the above techniques for estimating Q4
revenues are both silly. They ignore the fact that the secular
trend in AMZN's growth is incredibly negative. The only reason
I include it here is to illustrate the following:

(1) AMZN's 2Q results were disastrous.
(2) The people promoting this stock have no idea how to estimate results.
(3) AMZN's growth rate is dropping very quickly.

It is clear now that TMF was way over-optimistic in their
esimate. Note that they have not posted any sort of retraction,
and are still talking this stock up. The effect of the reduction
in sales from the above calculations is something like 25%,
depending on how you make the calculation.

The consequences of a reduction in revenue estimate of this
magnitude to the predicted stock value is huge:

(1) The reduction in top line means that AMZN would have 25% fewer sales.
(2) The reduction in sales means that the earnings (or cash flow) would be worse.
(3) The reduction in growth means that the P/S ratio would have to be reduced.

As far as estimating what AMZN's 4Q99 sales would be, I have
posted my estimate as $500MM in the previous post to this. My
calculations take into account the secular decrease in AMZN
growth rates. This growth rate is dropping regardless of the
vertical businesses grown into, and was particularly bad this
past quarter despite the addition of an auction business at
the start of the quarter.

-- Carl

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To: Bilow who wrote (165)8/1/1999 1:35:00 AM
From: Bilow
   of 182
 
Re: WMT vs. AMZN growth rates. While reading back through prior The
Motley Fool Rule Breaker reports, I found the following, which I
though I would take some effort to correct, as it is another example
of the mathematical and financial illiteracy of the people analyzing
AMZN:

When one considers that Amazon is growing much more quickly than
Wal-Mart ever did ...

fool.com

The gist of the article is that AMZN should be valued more highly
because it is growing much more quickly than WMT. Even ignoring the
profit history, and the different market segments, it is not possible
to so easily compare companies that are growing at different rates.

I thought I would analyze WMT's revenue growth using the same techniques
I did with AMZN's. This way I can produce estimates of WMT's future
revenues. First, the raw data from TSCN:

HISTORICAL QUARTERLY RESULTS
REVENUE
(Thousands of U.S. Dollars)
1997 1998 1999 2000
1st Qtr APR 23,007,000 25,695,000 30,157,000 35,123,000
2nd Qtr JUL 25,844,000 28,704,000 33,880,000
3rd Qtr OCT 26,078,000 29,127,000 33,924,000
4th Qtr JAN 31,249,000 35,773,000 41,247,000

tscn.com

Note that WMT is growing beautifully, with no big changes in growth
rates, and also note that the change in revenues over the whole 3 years
was only +52%. This is not comparable to AMZN's growth, so instead I
will go to edgar-online, and grab the annual sales data for as far back
as I can (easily) get it. But I might as well take a look at what these
quarter's data looks like:

WMT Growth Rates 1Q98 to 1Q00:

Yearly Growth
Date Revenue Increase Change Lossage
---- -------- -------- ------ -------
1Q97 23007
2Q97 25844
3Q97 26078
4Q97 31249
1Q98 25695 11.7%
2Q98 28704 11.1% -0.6% -5%
3Q98 29127 12.7% 1.6% 14%
4Q98 35773 14.5% 1.8% 14%
1Q99 30157 17.4% 2.9% 20%
2Q99 33880 18.0% 0.6% 3%
3Q99 33924 16.5% -1.5% -8%
4Q99 41247 15.3% -1.2% -7%
1Q00 35123 16.5% 1.2% 8%

This is good clean growth, with no big change in growth rate. The lowest
growth rate recorded was 11.1%, while the highest was 18.0%. Surprisingly,
the trend is mildly up. The figures for AMZN over its quarterly data range
from 1729% to 171%, and trended only down.

Anyway, a search of edgar-online 10-Ks gives the following for WMT yearly
revenues, with calculated Yearly Increase, Change and Growth Change:

Fiscal Revenue Yearly Growth
Year (MM) Increase Change Change
---- ------- -------- ------ -------
1993 55484
1994 67344 21.4%
1995 82494 22.5% 1.1% 5%
1996 93627 13.5% -9.0% -40%
1997 104859 12.0% -1.5% -11%
1998 117958 12.5% 0.5% 4%
1999 137634 16.7% 4.2% 34%

Note that WMT has been growing its rate of growth for the last two years,
though this growth is less than what it had the previous 3 years. The
growth rate has been increasing lately, so I will suppose that it will
continue to increase at the average of the last two years, or 19% per
year. This corresponds to an increase rate of 4% per quarter, so here
are the extrapolated data for WMT, next 6 quarters:

b>WMT Growth Rates extrapolated to 3Q01:

Yearly Growth
Date Revenue Increase Change Change
---- -------- -------- ------ -------
1Q97 23007
2Q97 25844
3Q97 26078
4Q97 31249
1Q98 25695 11.7%
2Q98 28704 11.1% -0.6% -5%
3Q98 29127 12.7% 1.6% 14%
4Q98 35773 14.5% 1.8% 14%
1Q99 30157 17.4% 2.9% 20%
2Q99 33880 18.0% 0.6% 3%
3Q99 33924 16.5% -1.5% -8%
4Q99 41247 15.3% -1.2% -7%
1Q00 35123 16.5% 1.2% 8%

2Q00 39707 17.2% 0.7% 4%
3Q00 39996 17.9% 0.7% 4%
4Q00 48919 18.6% 0.7% 4%
1Q01 41902 19.3% 0.7% 4%
2Q01 47688 20.1% 0.8% 4%
3Q01 48355 20.9% 0.8% 4%

The growth rate will likely be something around 21% six quarters from now,
or if they turn down immediately, maybe as low as 12%. In any case, this
growth looks to be something like 1/3 to 1/2 of what AMZN's growth rate
will be at that time. But WMT sells something like $144B per year, and is
likely to sell something like $180B (ttm) six quarters from now. AMZN may
end up selling something like $2B at that time, and have a growth rate of
35% per year. The ratio in current market caps is about 10 to one, but the
ratio in sales is likely to be something like 90 to 1. On a looking forward
P/S basis, AMZN is something like 9x over valued compared to WMT. Correcting
for AMZN's higher growth rate (at that time) gives maybe 4x. Correcting for
WMT's being currently profitable, makes the over valuation back to the double
digits region.

It would be much more useful to analysts if AMZN would report their results
according to the store. Note that WMT does this, it has three divisions.
You can break out the numbers to see where the growth is, if you want to.
My guess is that if AMZN broke out book sales, we would be seeing no growth
at all, on a consecutive quarter basis, and would be seeing no growth year
over year within one year. The reason for my expecting AMZN to begin having
these sorts of numbers is that it is clear that its competitors are still
growing their businesses at high rates, while AMZN only grew its total
sales by 7% 2Q over 1Q. I haven't yet worked out the numbers, this is only
what my gut instinct tells me. I will post an analysis to that effect some
time in the future.

Here are historical and my extrapolated growth rates for
AMZN, calculated seasonally adjusted:

AMZN Growth Rates 3Q99 &c. extrapolated:

Yearly Growth
Date Revenue Increase Change Lossage
---- -------- -------- ------ -------
Q96 875
2Q96 2230
3Q96 4173
4Q96 8468
1Q97 16005 1729%
2Q97 27855 1150% -579% -33%
3Q97 37887 808% -342% -30%
4Q97 66040 680% -128% -16%
1Q98 87361 446% -234% -34%
2Q98 116044 317% -129% -29%
3Q98 153698 306% -11% -3%
4Q98 252893 283% -23% -8%
1Q99 293643 236% -47% -17%
2Q99 314377 171% -65% -28%

3Q99 356579 132% -39% -23%
4Q99 508314 101% -31% -23%
1Q00 522684 78% -23% -23%
2Q00 503003 60% -18% -23%
3Q00 520605 46% -14% -23%
4Q00 705623 35% -11% -23%

-- Carl

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To: Bilow who wrote (166)8/1/1999 3:46:00 AM
From: Bilow
   of 182
 
I guess it's time to get some numbers on how AMZN is doing
in the book business. The reason for wondering about this
is to get a handle on some sort of equivalent of same store
sales. For each new business that AMZN starts, they will
have to purchase and pay for infrastructure. So it would
be nice to take a look at just one e-business, the oldest
one.

Books were the first business AMZN got into, and it was chosen
very carefully. Bezos has said that he looked over a lot of
possible things to sell over the net, but books was the best.
So if the book business is coming unglued, you know that this
company is in deep, deep trouble. Unfortunately, AMZN doesn't
break out its sales by division. My suggestion is that this
is done in order to fool investors into imagining results better
than actually exist. Hope springs eternal in the human breast.

To make this calculation, I will have to get AMZN's book sales
for 1998, and AMZN's book sales for 1999. In order to do this,
I will have to make a bunch of assumptions, but I believe that
they are all reasonable.

(1) ESTIMATE AMZN'S BOOK SALES FOR 2Q98.

In 2Q98, AMZN sold books and music. At that quarter's press
release, they claimed to be the leading internet seller of CDs.
They had begun selling music in June 1998, so they need have
had only one quarter of sales greater than that of CDNW in
order to achieve that claim. CDNW sold $11.6MM that quarter,
so AMZN must have sold more than $3.9MM in music the same
quarter. AMZN's total sales figure for the quarter was
$116.044MM, so their book sales must have been around $112MM.

Reference CDNW revenue for 2Q98:
The Company's net sales grew to $11.6 million in the second
quarter of 1998

biz.yahoo.com

Reference AMZN revenue, back to 1996:
tscn.com

(2) ESTIMATE AMZN'S BOOK SALES FOR 2Q99.

Amazon's overall sales grew 171% for 2Q99 over 2Q98. Music
presumably grew by a faster rate, and, in addition, was sold
for all three months rather than just one. Consequently, my
estimate for music sales in 2Q99 is $3.9MM * 3 * (1.0 + 1.71)
= 31.7MM. In addition, AMZN claimed to be selling more music
and video than anyone else on the net:

Amazon.com, Inc., the Internet's No. 1 music, No. 1 video,
and No. 1 book retailer

biz.yahoo.com

Since CDNW reported sales of $34MM, AMZN's sales were presumably
larger, say $35MM. In any case, my estimates are clearly on
track. Note that the following press release came out 9 days
before the above AMZN press release, and had to have been read
by Bezos when he made his No. 1 PR above:

The company, which recently merged with rival N2K, also sees
revenues for the quarter at about $34.5 million to $35 million,
but noted that revenues were restricted as it focused on integrating
its online store with N2K's Music Boulevard.

In last year's second quarter, the company reported a loss of $0.55
a share, on sales of $11.6 million.

biz.yahoo.com
biz.yahoo.com

The second leading video etailer, REEL got bought by HLYW last
year, and is reported in their figures. They may be going back
public soon, rumor has it. Video sales for the second quarter
were $5.9MM on-line:

Revenue was also favorably impacted by an increase of 18% in
comparable store revenue in the current year first quarter and
the purchase of Reel.com in October 1998, which added $6.4 million
in revenue (of which $5.9 million was on-line revenue).

biz.yahoo.com

Thus AMZN's video sales have to be in excess of $5.9MM, say $6.0MM.

Given at least $35MM of music sales, and at least $6MM of video
sales, AMZN's book sales were therefore at most
$314MM - $6MM - $35MM = $273MM.

(3) POSSIBLE ERRORS.

Assuming the company PRs are true, and it is known that AMZN
watches its competitors carefully, errors in the above calculations
will show that either:
(a) The music business is growing more slowly than the book
business, which says horrible things for AMZN's ability to
move into another market niche;
(b) or the core book business is growing even slower than
calculated.

My guess is that (b) is the case.

(4) AMAZON'S BOOK SALES GROWTH RATE.

From the above, it works out that Amazon's book sales increased
at most only about 144% over the previous year. This is considerably
lower than the overall revenue increase of 171%. This is the
same store figure that would be of interest to almost all analysts.
Note that my numbers are very likely an overestimate of the growth
rate.

Before 2Q98, AMZN's business included only books. The growth rates,
year over year, for same quarters that inclduded only book sales were
446% or higher. To have book sales growing at such a small rate now
is quite a reduction.

(5) AMAZON VS. BNBN

BarnesAndNoble.com only sells books, so we can now compare the growth
rates of the two companies, in terms of books only. We can now also
estimate their relative market shares. In particular, in 2Q99, BNBN
sold $39MM, to AMZN's $273MM. The ratio is therefore about 7. I
believe that the market ratio between the two companies, in books,
was always in double digits during 1998. BNBN is picking up market
share at the expense of AMZN. This trend will probably continue,
nor is BNBN the only book seller probably picking up market share.
Walmart recently signed an agreement with BAMM to sell books, for
instance.

I here repeat my extrapolations for total AMZN sales:

AMZN Growth Rates 3Q99 &c. extrapolated:

Yearly Growth
Date Revenue Increase Change Lossage
---- -------- -------- ------ -------
Q96 875
2Q96 2230
3Q96 4173
4Q96 8468
1Q97 16005 1729%
2Q97 27855 1150% -579% -33%
3Q97 37887 808% -342% -30%
4Q97 66040 680% -128% -16%
1Q98 87361 446% -234% -34%
2Q98 116044 317% -129% -29%
3Q98 153698 306% -11% -3%
4Q98 252893 283% -23% -8%
1Q99 293643 236% -47% -17%
2Q99 314377 171% -65% -28%

3Q99 356579 132% -39% -23%
4Q99 508314 101% -31% -23%
1Q00 522684 78% -23% -23%
2Q00 503003 60% -18% -23%
3Q00 520605 46% -14% -23%
4Q00 705623 35% -11% -23%

The corresponding extrapolation for BNBN is as follows. Note that
BNBN is growing faster than AMZN, and that its most recent 2 quarters
growth lossage is much less than AMZN's. In fact, the two company's
results mirror each other. One might suppose AMZN advertising
briefly flipped things around during the third and fourth quarters,
and that during the last two quarters things have returned around.
Since I have to pick an arbitrary Growth Lossage in order to
extrapolate into the future, I will use the average of the loss over
the most recent three quarters: -13%.

BNBN Growth Rates 3Q99 &c. extrapolated:

Yearly Growth
Date Revenue Increase Change Lossage
---- -------- -------- ------ -------
1Q97 44
2Q97 1593
3Q97 3252
4Q97 7060
1Q98 9013 NM
2Q98 11380 614%
3Q98 15561 379% -235% -38%
4Q98 25880 267% -112% -30%
1Q99 32317 259% -8% -3%
2Q99 39065 243% -16% -6%

3Q99E 48394 211% -32% -13%
4Q99E 73499 184% -27% -13%
1Q00E 84024 160% -24% -13%
2Q00E 93365 139% -21% -13%
3Q00E 106952 121% -18% -13%
4Q00E 150673 105% -16% -13%

BNBN Revenue figures are from:
tscn.com

My estimates for the third and fourth quarters are no doubt
underestimates, unless AMZN spends a lot of money on advertising
again. In any case, I see the ratio between the two company's
on-line book sales drifting into the 3 to 1 range by 4Q00. It is
pretty easy to suspect that BNBN will eventually overtake AMZN in
this area.

-- Carl

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To: Bilow who wrote (167)8/1/1999 3:17:00 PM
From: Bilow
   of 182
 
How are AMZN's international sales growing? We can pull the
data out of the SEC filings...

The raw data consists of total revenues, and percentage that
are international. Amazon's revenues are familiar to all:

HISTORICAL QUARTERLY RESULTS
REVENUE
(Thousands of U.S. Dollars)
1996 1997 1998 1999
1st Qtr MAR 875 16,005 87,361 293,643
2nd Qtr JUN 2,230 27,855 116,044 314,377*
3rd Qtr SEP 4,173 37,887 153,698
4th Qtr DEC 8,468 66,040 252,893

The international sales percentages were wonderfully easy to locate:

1Q98, 1Q97:
International sales represented 21% and 28% of net sales
for the quarters ended March 31, 1998 and 1997, respectively.

edgar-online.com

1Q99, 1Q98:
International sales, including export sales from the United
States, represented 22% and 21% of net sales for the quarters
ended March 31, 1999 and 1998, respectively.

biz.yahoo.com

2Q97, 2Q96:
International sales represented 28% and
37% of net sales for the quarters ended June 30, 1997 and 1996,
respectively, and 28% and 38% of net sales for the six months
ended June 30, 1997 and 1996, respectively.

edgar-online.com

2Q98, 2Q97:
International sales represented 22% and 28% of net sales for
the quarters ended June 30, 1998 and 1997, respectively, and 21%
and 28% of net sales for the six months ended June 30, 1998 and
1997, respectively.

biz.yahoo.com

3Q97, 3Q96:
International sales represented 26% and
35% of net sales for the quarters ended September 30, 1997 and 1996,
respectively, and 27% and 36% of net sales for the nine months ended
September 30, 1997 and 1996, respectively.

edgar-online.com

3Q98, 3Q97:
International sales represented 20% and 26% of net sales for
the quarters ended September 30, 1998 and 1997, respectively, and
21% and 27% of net sales for the nine months ended September 30,
1998 and 1997, respectively.


1996, 1995:
International sales represented approximately 39% and 33% of
net sales in 1995 and 1996, respectively.

edgar-online.com

1998, 1997 1996:
International sales, including export sales from the United
States, represented approximately 20%, 25% and 33% of net sales
for the years ended December 31, 1998, 1997 and 1996, respectively.

biz.yahoo.com

The above links are all to SEC filings. The 2Q99 filing isn't available
to me, so my international analysis has to stop with 1Q99. But the
above figures are sufficient to compute international and domestic
sales for the rest of the quarters, from the above sources, the percentages
marked with "c" are calculated from the above data. The 2Q99 international
percentage is my guess. We will know when the SEC filing happens.

1996 Int 1997 Int 1998 Int 1999 Int
----- --- ------ --- ------- --- ------- ---
1Q 875 41%c 16,005 28% 87,361 21% 293,643 22%
2Q 2,230 37% 27,855 28% 116,044 22% 314,377 23%E
3Q 4,173 35% 37,887 26% 153,698 20%
4Q 8,468 30%c 66,040 22%c 252,893 19%c
------ --- ------- --- ------- --- --------
Yr 15,746 33% 147,787 25% 609,996 20%

One is then able to fill in the missing data, and get both US and
international sales. Of course there are rounding errors, but the
data should be good to almost two decimal places. I have estimated
the 2Q99 figures as 23% international.

International / US sales:

1996 1997 1998 1999
Intr. U.S. Intr. U.S. Intr. U.S. Intr. U.S.
----- ------ ------ ------- ------- ------- ------- -------
1Q 359 516 4,481 11,524 18,346 69,015 64,601 229,042
2Q 825 1,405 7,799 20,056 25,530 90,514 72,307E 242,070E
3Q 1,461 2,712 9,851 28,036 30,740 122,958
4Q 2,551 5,917 14,816 51,224 47,383 205,510
----- ------ ------ ------- ------- ------- ------- -------
Yr 5,196 10,550 36,947 110,840 121,999 487,997

The first thing to notice is that international sales as a percentage of
total sales has been falling trending down since 1Q96. I interpret this
to mean
that AMZN has been able to find acceptance in the US more readily than
overseas. This is probably due to international shipping (and perhaps
duty) costs.

The second thing to notice is that international sales are slightly below
trend for the fourth quarters, while above trend for the other quarters.
This is, no doubt, a seasonality effect. Maybe I will do a trend analysis
on the international and US sales separately...

-- Carl

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