01—Abstract
Summary
Summary of the 10-K filed March 29, 2000. Cited figures are marked; the original filing is the authoritative source.
Amazon.com's 10-K for fiscal 1999 shows a company rapidly scaling revenue while losses widen sharply.
Net sales rose 169% to $1.64 billion, but the net loss grew to $720 milliona ($2.20 per share), up from $125 million in 1998. Gross margin fell to 17.7% from 21.9%, driven by new product lines such as toys and electronics, promotional gift certificates, roughly $39 million of fourth-quarter inventory charges, and weaker shipping margins. Operating expenses are heavy: marketing and sales reached 25.2% of sales, and amortization of goodwill from 1999 acquisitions reached $215 million.
Loss from operations was $606 millionb, or 36.9% of sales. The balance sheet and capital structure are the main investor concerns. Total debt was about $1.48 billion at year-end, and the February 2000 euro-denominated PEACS offering added roughly $681 million more.
Stockholders' equity was $266 millionc and the accumulated deficit reached $882 million. Operating cash flow was negative $91 million, with the company relying on $1.1 billion of financing in 1999. Management says cash and marketable securities of $706 million plus the PEACS proceeds should cover operating needs for at least 12 months, and expects operating loss as a percentage of sales to decline in 2000.
Beyond financials, the filing flags material risks. Two federal class action suits and an FTC inquiry concern Alexa Internet's tracking of users' web browsing paths.
Amazon also faces inventory-management weaknesses, a heavy reliance on a few book distributors, Year 2000 dependency on third parties, and a possible loss of the sales-tax exemption if Congress does not renew the Internet Tax Freedom Act. The company has never paid dividends, and its stock traded between $41d and $113 during 1999.
02—Key points
Key Highlights
- Net sales grew 169% to $1.64 billion in 1999, with the US Books, Music and DVD/video segment contributing $1.31 billion.
- Net loss widened to $720 million ($2.20 per share) from $125 million in 1998, and loss from operations reached 36.9% of sales.
- Gross margin declined to 17.7% from 21.9%, reflecting new product lines, promotional gift certificates, and about $39 million of Q4 inventory charges. Management expects roughly 20% for 2000.
- Total debt was about $1.48 billion at year-end 1999, plus roughly $681 million in euro-denominated 6.875% PEACS issued in February 2000.
- Stockholders' equity was $266 million against an accumulated deficit of $882 million; operating cash flow was negative $91 million in 1999.
- Cash and marketable securities totaled $706 million at year-end, which management believes, together with PEACS proceeds, covers operating needs for at least 12 months.
- Pending class actions and an FTC inquiry concern Alexa Internet's web-usage tracking, a material legal risk the company says it disputes.
03—Questions
Frequently Asked Questions
Is Amazon approaching profitability?
Not yet. The company lost $720 million in 1999 and its accumulated deficit is $882 million. Management says the US books business was profitable on a pro forma basis in Q4 1999 and expects it to stay profitable in 2000. It also expects the operating loss as a percentage of sales to decline in 2000, but it has not forecast consolidated profitability.
How much debt does Amazon carry, and does it have enough liquidity?
Year-end 1999 debt was about $1.48 billion, consisting of the $1.25 billion 4 3/4% convertible notes, the $190.7 million remaining principal of 10% senior discount notes, and capital leases. The February 2000 PEACS issue added about $681 million. Management believes $706 million of cash and marketable securities plus the PEACS proceeds will cover operating needs for at least 12 months, but it notes that additional equity or debt financing may be needed if cash flow falls short.
What are the biggest risks to the business?
The filing highlights thin and declining gross margins from new categories, inventory and fulfillment execution risk, dependence on a few distributors (about 30% of 1999 purchases from three vendors), intense competition from better-capitalized rivals, system interruptions, and Year 2000 exposure to third parties. Legal and regulatory risks include the Alexa privacy class actions, a possible FTC action, state and EU taxation of online sales, and state regulation of auctions and zShops.
Why did the loss per share increase so much?
The loss increase came mainly from operating expansion. Amortization of goodwill and intangibles from 1999 acquisitions rose to $215 million from $43 million, marketing and sales rose to $413 million, and equity-method losses rose to $77 million. The company is also paying interest of $85 million on its debt. Management says pro forma results, which exclude amortization, stock-based compensation, and equity losses, would show a loss of about $390 million, or $1.19 per share.
04—Continue