Whatever Next? Amazon Makes A Profit!

January 22, 2002 9:11 AM

Whatever Next? Amazon Makes A Profit! Having lost $3 billion so far, Amazon Books has just posted its first-ever profit of $5 million. Perhaps it was thanks to the new machines they bought to replace more workers.(this last link req. NYT reg.) How would you spend it if you were Jeff Bezos? And what does it mean: has the tide turned or not?
posted by MiguelCardoso (27 comments total)

Good. Now, the accounting? Hate to sound cynical, but there's a rather profound reason to be skeptical of earnings reports these days.
posted by raysmj at 9:18 AM on January 22, 2002

It seems the economy is slowly turning around. Here's one reason to be somewhat optimistic - "Leading economic indicators index rose 1.2 percent in December for third monthly gain...generally indicate that the economy will expand in the next three to six months. "
posted by revbrian at 9:22 AM on January 22, 2002

We all knew an amazon profit would happen someday, it's nice to see it finally happen. I'd like to see if they can pull a profit during the spring, without the xmas rush to pad their sales.
posted by mathowie at 9:30 AM on January 22, 2002

I'd like to know how Dude Where's My Car? keeps poping up on the "page I made".

I'm frankly surprised to see it take this long for a profit to appear. Amazoning has a become a verb, albeit not a widely used one. Most casual net users seem to equate any kind of shopping on the net with the Amazon experience.
posted by dong_resin at 9:36 AM on January 22, 2002

Amazon showed improvement over the previous year, which is great. However, prospective investors need to educate themselves about the potential implications of the company's long-term debt, much of which is in the form of convertible bonds. Also, pro forma earnings can vary wildly from earnings calculated using "generally accepted accounting principles." I'm not slamming the company, but as raysmj points out, these are times when a bit of skepticism can save your ass.
posted by gimli at 9:50 AM on January 22, 2002

Making a $5 million profit this year doesn't mean Jeff Bezos can go on a shopping spree, not when they lost $545 million last year. Oh, or was this another post-as-survey-question, 'How would you spend $5 million?' Sorry, I wasn't paying attention.
posted by owen at 9:57 AM on January 22, 2002

I've just been comparing Tim Arango's article today in thestreet.com and the analysis he published a year ago. I completely lack the financial acumen to comment, but it sure seems like there's been a hell of an attitude shift.
posted by MiguelCardoso at 10:03 AM on January 22, 2002

Full text of an email I received about 20 minutes ago from a friend at Amazon (not a drone--he's a higher-uppish sort who's been there for over two years):

On a GAAP basis, the Company recorded a fourth quarter 2001 net profit of $5
million, or $0.01 per share.

We made enough to buy a nice place in the Catskills.

I'll probably be let go on Friday.
posted by Skot at 10:05 AM on January 22, 2002

Recovery or not, Wall Street and all of corporate finance will be in deep do-do real soon if they don't quit treating the Enron Fiasco like a corporate anomaly.

The cat's outa the bag now, and everyone knows the corps fudge their numbers, some more than others. Pulls the rug right out from under investors.
posted by BentPenguin at 10:33 AM on January 22, 2002

I've posted Amazon book links here but only for book excerpts. Having worked there in both warehouse and customer service, I'll probably never buy a thing from Amazon ever. All commercial links on my show's links page go straight to record companies with mail order service. When they work, that is... I have to update soon.
posted by y2karl at 10:36 AM on January 22, 2002

when amazon does go down, it's going to be ugly. all the people who have purchased from amazon will likely have their personal information sold as the company liquidates.
posted by moz at 10:39 AM on January 22, 2002

Hey, amazon ain't all bad. I hope they do survive, as I've saved quite a bit of money and gotten books & music that would have been very hard to find in my town. I hope a few of their competitors survive as well, of course.
posted by gimli at 11:02 AM on January 22, 2002

I'm not so sure that Amazon will go down. As long as Bezos is there, I think they'll stick around. If he leaves, they're in trouble.

I can safely say that the backlash from the Enron case is going to be a re-evaluation of GAAP. Arthur Andersen is most likely done in the audit/accounting business - I know several companies that are paying to have have external auditors come in to go over their accounts, and they're planning on terminating their relationships with Andersen as soon as possible.

Long term debt isn't a bad thing for a company like Amazon. The fact that they're announcing at least a small profit in a down economy, even with Xmas, is an improvement. Using news articles as references, sounds like they've been cost-cutting as much as possible (switching to linux to cut IT expenses, buying machinery to replace workers needed to pick product) and trying to turn the company in the right direction.
I couldn't find a recent Debt/Equity ratio on the web anywhere, but it would be interesting to see what it is, if anyone has the data. I'll bet that Amazon has a lot of equity, and since the company is not that old, hard assets like warehouses, computers and equipment can't be that old. What will be interesting to watch is how Amazon behaves as its assets begin to depreciate, and if they can keep up their cost-cutting without slashing R&D or their vital human resources.

(And Skot, I feel bad for your friend. Middle management is a really bad place to be during cost-cutting...)
posted by SpecialK at 11:06 AM on January 22, 2002

I know zip about the financial world, but I do know that Amazon is to online buying as Xerox is to photocopying. If they tank, it'll only be because their bad decisions overlapped their terrific ones. Personally, I hope they survive -- the symbolic blow to online commerce would be immense.
posted by tweebiscuit at 11:09 AM on January 22, 2002

Being as to anything as Xerox is to copying is a bad thing. Creator of a business, and victor in that business, are too very different things.

I do believe that Amazon will be very, very successful in the long run and is a multi-billion-value company at its fundamentals.

However, I'm far from convinced that this means that the stock is a good buy. Their long-term debt is a heavy burden to bear in a low-margin business, and it is entirely conceivable that they'll have to restructure in a manner in which their fundamental multi-billions of value are placed as new equity in the current note holders' hands, and the current stock holders will get little for their faith ... i.e., the "buy and hold" equity was actually the debt, and the "equity" was a lottery ticket where you "won" by selling in 1999...
posted by MattD at 11:15 AM on January 22, 2002

Ya, spending $3 billion to make $5 million doesn't sound like any tide has turned. Sounds like somebody learned math from the federal government.
posted by fleener at 11:18 AM on January 22, 2002

I think it's interesting that Amazon posted its first profit on the same day Kmart filed for bankruptcy. Actually, let me rephrase that: I think it is interesting that the two news stories have not been more closely linked. In reality, they are probably not causally-related stories, but if these two stories had happened on the same day a year or two ago, the "inevitable" conclusion would have been that shoppers were moving online. Now it's not even mentioned as a possibility. I wonder how many, if any, former Kmart shoppers are now loyal Amazon shoppers?

That was the ecommerce pitch, once upon a time...
posted by precipice at 11:39 AM on January 22, 2002

Just for the record, The Street.com reports that Amazon made a profit according to both the controversial pro forma and the more traditional general accounting principles.

There was, however, a footnote to the company's press release stating that the latest quarter would have shown a loss but for gains on currency hedging.
posted by raysmj at 11:40 AM on January 22, 2002

I like amazon for their overseas branches. I bought the British versions of the Harry Potter series through amazon.co.uk. It's nice to be able to buy and know they will ship to me here in the US.

I agree with Moz - if Amazon goes down it will be quite ugly.
posted by jazon at 11:42 AM on January 22, 2002

MattD hits the nail on the head. The potential for the dilution of the stock via restructuring is a handicap, imo. The company will have to continue to increase its profitability to survive. I think it has a chance, but the going will be tough.
posted by gimli at 11:43 AM on January 22, 2002

um, [company] had revenue of $1.12 billion -- in the quarter. That's billion with a 'b', in one quarter.

They might still struggle a little, and they may even have to cut back in the long run in order to get profits up, but just saying they're "going down" isn't exactly convincing.
posted by mattpfeff at 11:45 AM on January 22, 2002

Kudos to Amazon, use 'em, hope they make it, but really it's time for the hype to die. They're just not that big a deal, e.g. Wal-Mart did about 50 billion in revenue last quarter. The stock's P/E is just too high right now.
posted by quercus at 12:24 PM on January 22, 2002

with every cam girl linking to them via their wishlist, and every monday morning quarterback using them as an example to why eCommerce-this-or-that, i've been baffled to how they dont turn profits way bigger than this each quarter.

all they have to do is get me my crap in a reasonable amount of time and they do it. which is why they win, and so many others lose.

im equally shocked that so many knock them simply because they conduct business via the www. seems like a way more efficient way of doing things than paying rent and having to close at 9pm every day.

hang in there, dot com.
posted by tsarfan at 2:16 PM on January 22, 2002

Yes, I'm off by a few months (I predicted Amazon would be .gone by February). But this is nothing to cheer. A HUGE debt ship takes longer to sink than a small one. Amazon had lots going for it this Christmas season (fear of travel, for one), and this is the best they could do. Divide that 5 million over the debt structure of the company and you have a massive failure. And I still think the Internet novelty factor is inflating Amazon's real attraction. It's still going to sink soon.
posted by ParisParamus at 3:45 PM on January 22, 2002

I don't think using K-mart declaring bankruptcy to prove anything like that would succeed, as my immediate reaction was "They never did before?" They've been on the brink of it for the past five years.
posted by dagnyscott at 3:51 PM on January 22, 2002

Go, Jeff, go! I believe that he really deserved his "Person of the Year" designation from Time mag back in 99. My life is much more enjoyable since Amazon.com arrived.
posted by davidmsc at 5:27 PM on January 22, 2002

Even though it's old, I loved reading howardroark's cash flow analysis of Amazon on the Fool message boards.

The verdict? the Amazon board intiated coverage with a YGBFKM rating and a price targe of $0.30 a share.

Sweet.
posted by MarkO at 12:36 AM on January 23, 2002