This summary is based on the third quarter fiscal 2005 earnings call conducted by Amazon.com, Inc. (AMZN) on October 25, 2005.
Management:
Vice President of Investor Relations: Tim Stone
Senior Vice President and Chief Financial Officer: Thomas J. Szkutak
Chairman and Chief Executive Officer: Jeffrey P. Bezos
Key Investors Issues
- EPS were 7 cents per share compared to 13 cents per share last year.
- GAAP net income was $30 million compared to $54 million and.
- Revenue grew 27% to $1.86 billion.
Third Quarter Highlights
Trailing 12 months free cash flow grew 13% to $475 million.
As announced in August 2005, the company settled a patent lawsuit on terms including a previously unanticipated payment of $40 million.
Trailing 12 months free cash flow would have grown 22% to $515 million excluding this payment. Free cash flow is operating cash flow minus capital expenditures. Free cash excludes stock-based compensation and includes cash taxes paid, which is well below booked tax provision due to NOLs.
- The combination of common stock and stock-based awards outstanding was 438 million shares, compared with 434 million, up 1%.
- Stock-based awards outstanding were 24 million or 5.8% of shares outstanding, down from 27 million or 6.5% of shares outstanding.
- Return on invested capital was 34%.
- The company has $248 million of deferred tax assets, up from $12 million a year ago. For comparison, excluding tax assets and this $40 million legal settlement, ROIC would have been 44% flat with the third quarter of 2004.
Revenue grew 27% to $1.86 billion or 28% excluding the $7 million unfavorable impact from year-over-year changes in foreign exchange rates.
This was the first time in over three years that the company has been negatively impacted by foreign exchange rates.
- Worldwide revenue benefited by approximately 260 basis points of year-over-year growth from Harry Potter 6 tales plus pre-order attachments. Excluding Harry Potter 6 plus attachments and changes in foreign exchange rates, revenue growth accelerated to 25%, up from 24% on a comparable basis in the second quarter of 2005.
- Worldwide unit growth was 28%. Third-party units, representing Marketplace and Merchandise units sold by Amazon sites, were 30% of total units, up from 28%. Third-party units as a percentage of total units were 17% just three years ago.
- Active customer accounts, representing customers who ordered in the past year, surpassed 52 million, up 19%.
- Media increased 20% to $1.3 billion.
- Electronics and other General Merchandise or EGM, increased 43% to $491 million, representing 26% of worldwide sales, up from 24%. Sales were over $8 billion, 45% of which came from International segment, and worldwide EGM sales surpassed $2.1 billion.
Gross profit grew 30% to $463 million, and gross margin increased 62 basis points to 24.9%, primarily due to increased third-party sales and a $29 million increase in other revenue, partially offset by a greater shipping loss, driven by free shipping in Amazon Prime, lower product prices including customer savings on Harry Potter 6 and the continued mix shift to International and EGM.
- Fulfillment, marketing, technology and content and G&A combined were $342 million or 18.4% of sales, up 59 basis points. Fulfillment was $166 million or 8.9% of sales, down 32 basis points. The company has expanded fulfillment capacity in 2005 through efficiency gains, as well as increases in leased warehouse space. The company plans to continue expanding worldwide fulfillment capacity in order to accommodate greater selection and meet anticipated shipment volumes from the company itself as well as third parties for whom the company provides the fulfillment. The company expects absolute amount spent in fulfillment and fulfillment-related cost of sales to increase over time. The company opened fulfillment centers in Pennsylvania, Texas and Scotland and new fulfillment centers in Kentucky and Japan will open to serve customers in the fourth quarter.
- Marketing was $42 million or 2.3% of sales, flat as a percentage of sales year-over-year.
- Technology and content was $108 million or 5.8% of sales, up 136 basis points.
- The company intends to continue hiring computer scientists and software engineers to invest in further innovation of customers, and expects annual technology and content costs devoted to sole platforms: Search, Web Services, Digital and other initiatives to increase in absolute dollars throughout 2005.
- G&A was $26 million or 1.4% of sales, down 36 basis points.
- The company recorded a $12 million credit for actual and expected reimbursement by an insurer of certain legal costs previously incurred by us. Excluding this credit, G&A would have been $38 million or 2.1% of sales, up 28 basis points.
