This summary is based on the third quarter fiscal 2006 earnings call conducted by Amazon.com, Inc. (AMZN) on October 24, 2006.
Management:
Founder and CEO: Jeff Bezos
CFO: Tom Szkutak
IR: Kim Nelson
Key Investors Issues
- EPS were 5 cents per share compared to 7 cents per share last year.
- Net income was $19 million compared to $30 million a year ago.
- Revenue grew 24% to $2.3 billion.
Third Quarter Highlights
The trailing 12-month free cash flow declined 23% to $366 million, driven primarily by increased expenditure in technology and content.
- The combination of common stock and stock-based awards outstanding was 435 million shares compared with 438 million, down 1%.
- The company repurchased 8 million shares or $252 million under previously announced authorization to repurchase up to $500 million of the company''s common stock.
- Return on invested capital is 23%. ROIC is free cash flow divided by average total assets minus average current liabilities.
- Revenue grew 24% to $2.3 billion or 23%, excluding the $20 million favorable impact from year-over-year changes in foreign exchange rates. In 2005, worldwide revenue benefited by 260 basis points of year-over-year growth from Harry Potter 6, plus preorder attachments. Excluding Harry Potter 6 plus preorder attachments and changes in FX, revenue growth was 26%.
- Worldwide unit growth was 22% or 24%, excluding HP 6 plus attachments.
- Active customer accounts surpassed 61 million, up 17%.
- Electronics and other general merchandise, or EGM, increased to $699 million, up 43%, or 41% excluding foreign exchange rates.
- EGM represents 30% of worldwide sales up from 26%.
Gross profit grew 18% to $549 million.
- Gross margins decreased 113 basis points to 23.8%, which reflects lower product prices for customers, greater shipping loss driven by free shipping in Amazon Prime, and product mix.
- Fulfillment, marketing, tech and content and G&A combined was $477 million or 20.7% of sales, up 227 basis points. Fulfillment was $209 million or 9.1% of sales, up 11 basis points. The company opened a new fulfillment center in Leipzig, Germany which is now fully operational.
- Marketing was $63 million, or 2.7% of sales, up 45 basis points.
- Technology and content was $156 million, up 45% year-over-year or 6.8% of sales, up 98 basis points year-over-year and down 31 basis points as a percentage of sales from the second quarter.
The company is investing in technology to innovate in areas such as seller platforms, web services and digital.
Additionally, the company continues to invest in increasing selection. In the last 12 months the company has increased selection of unique products carried in warehouses by over 50%. In addition to adding to category leadership and buying teams for existing categories, the company has added additional resources in new categories. The company expects the year-over-year percentage growth in technology and content to continue to decrease in the fourth quarter 2006.
- G&A was $49 million or 2.1% of sales, up 72 basis points. The company recorded a $12 million expense reduction related to actual and expected reimbursement by an insurer of certain legal costs that had been previously incurred.
- Consistent with prior periods, the company doesn’t allocate stock-based compensation or other operating expense to segments.
In the North America segment, revenue grew 21% to $1.26 billion.
- Media revenue grew 15% to $785 million even though the comparison quarter last year included the release of Harry Potter 6.
- EGM grew 35% to $409 million, representing 33% of North America revenues up from 29%.
- Gross profit grew 17% to $343 million and gross margin decreased 78 basis points to 27.3%, primarily from lowering prices including free shipping at Amazon Prime as well as product mix.
- The North America segment operating income decreased 67% to $22 million, a 1.7% operating margin.
In the International segment, revenue grew 29% to $1.05 billion.
- Revenue growth was 26%, adjusting for the $18 million year-over-year favorable FX impact.
- Media revenue grew 20% to $757 million or 19% excluding FX. EGM revenue grew 55% to $290 million or 51%, excluding the impact of foreign exchange rates.
- EGM represents 28% of international revenues, up from 23%.
