This is a summary of the third quarter fiscal 2008 earnings call conducted by Amazon.com, Inc. (AMZN) on October 22, 2008.
Management:
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Vice President, IR: Rob Eldridge
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CFO, Senior Vice President: Thomas J. Szkutak
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Chairman of the Board, President, CEO: Jeffrey P. Bezos
Key Investor Issues:
- The company earned $118 million, or 27 cents per share compared with $80 million, or 19 cents per share a year earlier.
- Revenue rose almost 31% to $4.26 billion. Sales of books, CDs and DVDs rose 19% to $2.49 billion, and sales of electronics and other merchandise rose 52% to $1.64 billion.
- Amazon anticipates full-year revenue of $18.46 billion to $19.46 billion.
- Sales of book titles for Kindle account for more than 10% of total book sales.
- Revenue from shipping climbed 12% to $191 million. Net shipping cost also rose to $132 million from $89 million in the year-ago quarter.
Third Quarter Highlights:
Trailing 12-month free cash flow increased 21% to $970 million. The combination of common stock and stock-based awards outstanding was 448 million shares compared with 435 million.
Return on invested capital was 32%, down from 42%.
Worldwide revenue grew 31% to $4.26 billion, or 28% excluding the $80 million favorable impact from year-over-year changes in foreign exchange rates. In the third quarter 2007, worldwide revenue benefited by approximately 290 basis points of year-over-year growth from Harry Potter 7 sales plus attachments. Excluding Harry Potter 7 plus attachments and changes in foreign exchange rates, revenue growth was 31%.
Media revenue increased to $2.49 billion, up 19%, or 17% excluding FX.
EGM revenue increased to $1.64 billion, up 52% or 49% excluding foreign exchange rates. Worldwide EGM increased to 38% of worldwide sales, up from 33%.
Worldwide unit growth was 30% or 32% excluding Harry Potter 7 plus attachments.
Prime membership increased more than 70% from the prior year and Amazon premium, the French version of Amazon Prime, launched on October 1st. The company expects more customers to save time and money by using Amazon Prime to ship their gifts to friends and family this holiday season.
- Active customer accounts exceeded 84 million, up 17%.
- Worldwide active seller accounts were more than 1.4 million, up 17%.
- Seller units were 31% of total units, unchanged from the prior year.
- Worldwide gross profit was $999 million, up 31%.
The company recently lowered the free shipping threshold from 15 pounds to 5 pounds in the U.K. Super Save shipping is an important component of its overall value Amazon.com provides and customers have save more than $700 million with the free shipping offers over the past 12 months.
Fulfillment, marketing and technology and content and G&A combined was $768 million, or 18% of sales, up 8 basis points year over year.
Fulfillment was $378 million, or 8.9% of revenue, compared with 8.7%. The company opened new fulfillment centers in Arizona, Indiana, and Pennsylvania to support continued expansion of selection and customer demand.
Technology and content was $226 million, or 5.3% of revenue compared with 5.6%.
- In the North America segment, revenue grew 29% to $2.3 billion.
- Media revenue grew 15% to $1.25 billion.
- Kindle selection continues to grow. Since inception, the company has more than doubled the number of books, magazines, newspapers, and blogs available to be delivered wirelessly in less than one minute.
Kindle titles already account for more than 10% of unit sales for books that are available in both digital and print formats. The company has ramped up manufacturing capacity over the past 10 months and Kindles are in stock and available for immediate shipment. Kindle sales since launch have significantly exceeded expectations. The company will not introduce the new version of the Kindle until next year at the earliest.
EGM revenue grew 51% to $950 million, representing 41% of North America revenues, up from 35%.
North American gross profit grew 28% to $586 million and gross margin decreased 24 basis points to 25.5%, driven by lower prices for the customers, including free shipping offers in Amazon Prime, and changes in product mix, partially offset by higher other revenue.
North America segment operating income increased 12% to $88 million, a 3.8% operating margin.
In the international segment, revenue grew 33% to $1.96 billion. Revenue growth was 28%, adjusting for the $80 million year-over-year favorable FX impact during the quarter.
Media revenue grew 24% to $1.25 billion, or 18% excluding FX, and EGM grew 54% to $690 million, or 48% excluding FX. EGM now represents 35% of international revenues, up from 30%.
International gross profit grew 37% to $413 million, or grew 32% excluding FX, while gross margin increased 53 basis points to 21.1%, driven by increases in 3P, product sales, and improvements in vendor pricing, partially offset by lower prices for the customers and changes in product mix.
