Amazon.com Bull's Rebuttal
by Louis Corrigan (TMF Seymor)

David's best case scenario could very well prove to be too conservative and his comparisons don't adequately account for Amazon's advantages versus the much-ballyhooed competition.

First, Amazon has been kicking butt. The company booked $66 million in sales for the fourth quarter, a 74% increase versus the third quarter! The customer list also jumped 61%, with 58% of sales coming from repeat purchasers. These awesome numbers reveal accelerating growth even as old customers are buying even more on average. Amazon's website is now the 18th most heavily frequented of all sites, seeing two million different consumers during December.

If I revise my revenue guesstimates accounting for the strong fourth quarter rather than using the much smaller third quarter, my new estimate is for $379 million in revenue this year, $663 million in FY99, and $1.16 billion for 2000. At $59 a share, Amazon trades at 3.7 times possible FY98 sales and 2.1 times possible FY99 sales. Sure, Borders <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGP)") else Response.Write("(NYSE: BGP)") end if %> sports a market cap of just 1.16 times projected FY97 revenue of $2.2 billion. Assuming, as David does, that Amazon could trade at a price-to-sales multiple double that of the competition, the company could be worth about $2.7 billion based on year 2000 sales of $1.1 billion. That would mean a $113 share price in 2000, before dilution

Second, Amazon is continually cutting costs. With its new Delaware distribution hub and newly expanded Seattle warehouse, it now has six times more inventory capacity so it can stock up to 300,000 titles bought directly from publishers, thus wiping out the wholesalers' cut. Amazon's major wholesalers (Ingram Book and Baker & Taylor) have also started "drop-shipping" service, allowing them to mail books directly to Amazon's customers, sparing re-shipping expenses.

As for the competition, Border's has delayed the grand opening of its website by another couple of months. Meanwhile, Barnes & Noble did a whopping $5.6 million in Web sales for the entire nine-week holiday season. Sure, these guys will see Internet sales rise, but they are going to lag Amazon by a mile because there are already 1.5 million active online customers comfortable buying books from Amazon. What about other competitors? Ingram has already tried to compete directly with Amazon and failed because its website didn't attract enough customers.

If a marginal amount of book buying goes online, some of these traditional booksellers' brick & mortar stores -- especially the hundreds of mall stores experiencing declining sales -- may see thin margins get thinner, turning the leases, personnel, and massive inventories into liabilities. Also, in David's imagined economic slowdown, Amazon stands to come out way ahead of its competitors simply because it has the lowest cost structure and lowest prices.

Then there's visionary CEO Jeff Bezos. Enough said.

Next: The Bear Responds