PW: Amazon Core Units See Sales Jump, Losses Lessen

Jim Milliot |

Apr 10, 2000

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Amazon Core Units See Sales Jump, Losses Lessen
Jim Milliot -- 4/10/00

Amazon.com's established online retail operations--its U.S. books, music and DVD/ video operations--had sales of $1.3 billion in 1999, an increase of 122% over the $588 million recorded in 1998, according to the company's 10-k filing with the SEC. The loss in the group was $31 million, down from a loss of $35.5 million in 1998 and even with the unit's loss in 1997, when the company had $147.8 million in total revenues.

The e-retailer's largest losses came in what it terms its "early-stage businesses and other" segment, which had a loss of $242.1 million on revenues of $163.8 million. The segment consists of the U.S. e-retailing operations that sell electronics, software, video games, toys and home improvement items. "Other" operations are Amazon's marketplace services that include Amazon.com auctions, zShops and sothebys.com. Also included in the segment is Amazon.com commerce network, a new program that allows selected partners to promote their products and services to Amazon's customers. Current network members include Greenlight.com, Living.com, Drugstore.com and Audible.com.

Revenues from Amazon's international operations, amazon.co.uk and amazon.de, totaled $167.7 million in 1999, compared to $21.8 million in 1998. The segment's loss last year deepened to $79.2 million from $25.5 million.

Earlier this year, Amazon reported total revenues of $1.64 billion and a net loss of $720 million (News, Feb. 7). The company generated shipping revenues of $229 million last year and gross shipping profits of $11.7 million. Due to the introduction of new product lines as well as $39 million in inventory-related charges, Amazon's gross margin fell to 17.7% last year from 21.9% in 1998. It expects to have a gross margin of 20% this year.

As usual, Amazon spent heavily in 1999 to promote its site. Marketing and sales expenses rose 211% last year to $413 million, a figure that represents 25.2% of all sales; in 1998, sales and marketing costs accounted for 21.8% of revenues. Among the costs associated with marketing and sales are fulfillment expenses, which totaled $188.4 million last year, an increase of 276% over 1998. Amazon said its marketing expenditures will increase in absolute dollars in 2000, but added that it expects such expenditures to decrease as a percentage of sales. Investments in its distribution structure helped to increase the e-retailer's direct purchases from suppliers, although 30% of all its purchases were from Ingram Book Group, Baker & Taylor and Valley Media.

Expenses involving technology and content rose 247% in 1999 to $159.7 million--or 9.7% of revenues compared to 7.6% of sales in 1998. Amazon said the higher costs were associated with upgrades to the features, content and functionality of its Web sites as well as transaction-processing systems.

The 10-k also listed companies in which Amazon holds a stake; those companies include Della.com, Drugstore.com, Gear.com, HomeGrocer.com, Kozmo.com, Naxon Corp. and Pets.com.

Despite making the first layoffs in its brief history in 1999, Amazon finished the year with 7,600 full-time and part-time employees, compared to 2,100 in 1998.

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A version of this article appeared in the 04/10/2000 issue of Publishers Weekly under the headline: