Amazon.com

1
Amazon.com

• Nicola Calabrese
• Clayzonia Hayes
• Issam Konsul
• Mani Khera
• Kenia Quiñonez
• Sean Wellman

2

• We seek to offer Earths Biggest Selection and
  to be Earths most Customer-centric company,
  where Customers can find and discover anything
  they might want to buy online.

3
Brief History

• Founded and incorporated in 1994 in Seattle, in
  the garage of Jeff Bezos.
• Amazon later changed its address to Delaware in
  1997, when they decided to go public in the month
  of May at an IPO of 1.50/share.
• Today Amazon.com is a NASDAQ Fortune 500 company,
  currently operating six websites from the UK to
  Japan.

4
Background Analysis

• Jeffrey P. Bezos
• Mr. Bezos has been Chairman of the Board of
  Amazon.com since founding it in 1994 and Chief
  Executive Officer since May 1996. Mr. Bezos
  served as President from founding until June 1999
  and again from October 2000 to the present.
• Time Magazines Person of the Year, 1999

5
Board Makeup

• Name Age
  Position
• Jeffrey P. Bezos 39
  President, Chief Executive
  Officer and
  Chairman of the
  
  Board
• Richard L. Dalzell 45
  Senior Vice President,
  
  Worldwide Architecture
  and
  
  Platform Software and
  Chief
  
  Information
  Officer
• Mark S. Peek 45
  Vice President and Chief
  
  Accounting Officer
• Diego Piacentini 42
  Senior Vice President, Worldwide
  
  Retail and Marketing
• Thomas J. Szkutak 42
  Senior Vice President and Chief
  
  Financial Officer
• Jeffrey A. Wilke 36
  Senior Vice President, Worldwide
  
  Operations and Customer Service
• L. Michelle Wilson 39
  Senior Vice President, Human
  Resources, General Counsel
  and Secretary

6
Industry Comparison
7
Industry Comparison
8
Product Segmentation

• They operate four segments
• 1. BMVD Books, music, DVD/Video and magazine
  subscriptions
• 2. ETK Electronics, Home Improvement, Home
  Garden products, and mail order catalog sales
• 3. International Export sales from
  international sites, excluding US and Canada
• 4. SVCS Commissions, fees and other services
• In 2000 Amazon launched five International
  websites
• www.amazon.com.co UK, Canada, France, Germany,
  and Japan

9
Revenues 2002
10
Financial Ratios - Strength
11
Financial Ratios - Weakness
12
Market Efficiency

• Non-Company Specific News
• July 16, 2003
• The Federal Reserve, after pushing interest rates
  to levels not seen since Dwight Eisenhower was
  president, is letting Congress know they will
  stay there for some time and may even go lower.
• Systematic Risk
• Weak Form

13
Market Efficiency

• Company Specific News
• April 24, 2003
• Amazon.com announces redemption of senior
  discount notes.
• Unsystematic Risk
• Weak Form

 
14
Stock Analysis

• FCFE (in thousands)
• NI -149,133
• Depreciation 82,274
• Capital Exp 39,163
• ? In Working Cap 263,212
• ? LTD 121,172
• FCFE -248,061

• DCF
• G 1.4706
• Ke 1.4543
• Pmkt 39.27 (7/14/03)
• P0 39.33
• By evidence of the DCF Model the current market
  price is slightly under-priced.

15
Risk Analysis (CAPM Model)

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Assumptions

• The three models are unreliable since Ke is
  negative and Amazon.com has never paid a
  dividend.
• Solution use of judgment to assess these rates.
  We estimated Ke to be between 20 to 25.
• Computed tax rates are too low.
• Solution use of 30 Corporate Tax Rate.
• Stockholders Deficit (not equity!)
• Solution take absolute values to compute
  weights and other figures.

17
WACC and MM

• MM Model 3 a scenario with tax, financial
  distress costs, and agency costs.
• Optimal Capital Structure
• 71 Debt 29 Equity.
• WACC is minimized at 8.78.
• We would expect WACC to be higher, but the firm
  relies heavily on debt.

18
Problems

• Stockholders deficit
• Continuous losses
• Negative cash flows
• High indebtedness
• High Beta, higher risk, high Ke
• Corporate governance
• Key executives are selling their shares

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Strengths

• High HPRs (short term gain).
• High Revenues
• High Sales and Gross Profit Ratios
• Underpriced

20
Conclusion

• Analyst Ratings
• Strong Buy 2
• Hold 4
• Strong Sell 2
• 50 Hold
• 25 Strong Sell
• 25 Strong Buy
• (www.msn.com)

• Nicola - Sell
• Clayzonia - Hold
• Mani - Hold
• Issam - Hold
• Kenia - Hold
• Sean - Hold
• Overall, despite five years of net losses and a
  positive HPR, we suggest that investors should
  HOLD the stock.

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Points to remember
Cash problems will always outweigh profitability
problems or even strengths. Bear in mind that
more businesses fail for lack of cash than for
want of profit.