Amazon Says Book Group Will Be Profitable in 2001

Jim Milliot |

Oct 30, 2000

News
Amazon Says Book Group Will Be Profitable in 2001 Jim Milliot -- 10/30/00 *Executives unsure when entire company will be in the black* Amazon.com's book, music and video group (BMV) will show a profit in every quarter in 2001 and will finish the year with a profit, Warren Jenson, Amazon's chief financial officer, told analysts in a conference call accompanying the release of the e-retailer's third-quarter results. Even though revenue growth in the BMV group has slowed, Amazon's ability to leverage higher sales over an already existing infrastructure should bring the group into the black next year, officials said. Books remained Amazon's single largest revenue stream in the quarter, although the company's newer electronics store has now moved into second place. For the third quarter ended September 30, 2000, revenues in the BMV unit increased 32.8%, to $400 million, and the division posted pro forma operating income of $25 million, compared to a pro forma loss of $109,000 in last year's third quarter. For the nine-month period, sales in the BMV group rose 39.8%, to $1.19 billion, and the division had pro forma operating income of $32.3 million, compared to an operating loss of $14.7 million in the first nine months of 1999. Jenson and Amazon chairman Jeff Bezos spent much of the conference call trying to convince analysts that the company is moving toward profitability, even though it posted a net loss of $240.5 million in the quarter on sales of $637.8 million. Improved vendor and inventory management are a couple of the steps Amazon is taking to become profitable, and Bezos noted that margins have improved in the BMV group since it has upped the amount of merchandise it orders directly from publishers to 55% from 40% in last year's third quarter. Costs were also held down in the BMV group because of its Harry Potter promotion, in which Amazon delivered copies of Harry Potter and the Goblet of Fire to 250,000 people via FedEx on the day the book was released. Although the promotion cost about $1 million, it actually lowered the cost to acquire new customers to $15. "I wish we could do one of these promotions a week," Bezos said. Asked about Amazon's position on e-books, Bezos said that he believes the e-book market will develop slowly, but that the company is experimenting with different e-book programs. "We're working on digital delivery," he said. Looking ahead at prospects for the entire company, Jenson estimated that fourth-quarter sales will be in the $950 million to $1.05 billion range, and that total revenues in 2001 will be about $4 billion, with an operating loss of less than 5% of sales. Jenson further observed that he was "comfortable" with Amazon's cash position, predicting that the company will have more than $1 billion in cash at the end of the year and $700 million at the end of next March. Capital expenditures are expected to be relatively low next year--about $125 million--and the company d s not expect to open any new distribution centers in the U.S. in 2001; distribution centers could be opened overseas, as Bezos said the company plans to keep entering new countries. International sales jumped 121% in the quarter, to $88 million. A company spokesperson had no comment on a wire service story that quoted a Japanese book distributor as saying that Amazon will enter that market before the end of the year. In a final bit of business, Jenson acknowledged that the Securities and Exchange Commission is conducting an "informal" investigation into Amazon's accounting practices related to its relationships with other online retailers that are part of the Amazon Commerce Network. Jenson said he is confident that Amazon's accounting procedures are correct.

News

Amazon Says Book Group Will Be Profitable in 2001
Jim Milliot -- 10/30/00
Executives unsure when entire company will be in the black

Amazon.com's book, music and video group (BMV) will show a profit in every quarter in 2001 and will finish the year with a profit, Warren Jenson, Amazon's chief financial officer, told analysts in a conference call accompanying the release of the e-retailer's third-quarter results. Even though revenue growth in the BMV group has slowed, Amazon's ability to leverage higher sales over an already existing infrastructure should bring the group into the black next year, officials said. Books remained Amazon's single largest revenue stream in the quarter, although the company's newer electronics store has now moved into second place.

For the third quarter ended September 30, 2000, revenues in the BMV unit increased 32.8%, to $400 million, and the division posted pro forma operating income of $25 million, compared to a pro forma loss of $109,000 in last year's third quarter. For the nine-month period, sales in the BMV group rose 39.8%, to $1.19 billion, and the division had pro forma operating income of $32.3 million, compared to an operating loss of $14.7 million in the first nine months of 1999.

Jenson and Amazon chairman Jeff Bezos spent much of the conference call trying to convince analysts that the company is moving toward profitability, even though it posted a net loss of $240.5 million in the quarter on sales of $637.8 million. Improved vendor and inventory management are a couple of the steps Amazon is taking to become profitable, and Bezos noted that margins have improved in the BMV group since it has upped the amount of merchandise it orders directly from publishers to 55% from 40% in last year's third quarter. Costs were also held down in the BMV group because of its Harry Potter promotion, in which Amazon delivered copies of Harry Potter and the Goblet of Fire to 250,000 people via FedEx on the day the book was released. Although the promotion cost about $1 million, it actually lowered the cost to acquire new customers to $15. "I wish we could do one of these promotions a week," Bezos said. Asked about Amazon's position on e-books, Bezos said that he believes the e-book market will develop slowly, but that the company is experimenting with different e-book programs. "We're working on digital delivery," he said.

Looking ahead at prospects for the entire company, Jenson estimated that fourth-quarter sales will be in the $950 million to $1.05 billion range, and that total revenues in 2001 will be about $4 billion, with an operating loss of less than 5% of sales. Jenson further observed that he was "comfortable" with Amazon's cash position, predicting that the company will have more than $1 billion in cash at the end of the year and $700 million at the end of next March. Capital expenditures are expected to be relatively low next year--about $125 million--and the company d s not expect to open any new distribution centers in the U.S. in 2001; distribution centers could be opened overseas, as Bezos said the company plans to keep entering new countries. International sales jumped 121% in the quarter, to $88 million. A company spokesperson had no comment on a wire service story that quoted a Japanese book distributor as saying that Amazon will enter that market before the end of the year.

In a final bit of business, Jenson acknowledged that the Securities and Exchange Commission is conducting an "informal" investigation into Amazon's accounting practices related to its relationships with other online retailers that are part of the Amazon Commerce Network. Jenson said he is confident that Amazon's accounting procedures are correct.

A version of this article appeared in the 10/30/2000 issue of Publishers Weekly under the headline: