Tom Szkutak, SVP & CFO Amazon.com. Banc of America Securities 2005 Consumer Conference March 16, 2005

Transcription

1 Tom Szkutak, SVP & CFO Amazon.com Banc of America Securities 2005 Consumer Conference March 16, 2005

2 Amazon.com This presentation may contain forward-looking statements, including statements regarding expectations of sales, gross margin, productivity, leverage, operating results, consolidated segment operating results, capital investment, return on capital, free cash flow and other financial statement or balance sheet items or ratios, all of which are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, competition, management of growth, potential fluctuations in operating results, international growth and expansion, fulfillment center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risk of future losses, significant indebtedness, system interruptions, consumer trends, limited operating history, government regulation and taxation, fraud, and new business areas. More information about factors that potentially could affect Amazon.com s financial results is included in Amazon.com s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2004, and all subsequent filings. Additional information relating to certain of our financial measures contained herein is available in our most recent press release and at our website at under Financial Documents. 2

3 Amazon.com Agenda Our Model Our Results Our Strategy Q&A 3

4 Amazon.com Our Model 4

5 Our Model Capital Efficiency -- Centralized Distribution Physical Store Amazon.com Headquarters Warehouses Stores Lower Invested Capital = Higher Return 5

6 Our Model Balance Sheet -- December 31, 2004 Assets Cash & Marketable Securities Inventories A/R, Deferred Tax Assets & Other Total Current Assets Fixed Assets, net Deferred Tax Assets & Other Total Assets Liabilities and Stockholders Deficit Current Liabilities Long-Term Debt Stockholders Deficit Total Liabilities & Stockholders Deficit ($MM) $ 1, , $3,249 $1,620 1,855 (227) $3,249 TTM Free Cash Flow $ Turns / 5% of Sales $726 in operating assets Fixed Assets Up 10% Y/Y Principal Due 2009 / 2010 $150 US Convert Partial Call Feb-04 $267 Euro Convert Partial Call Mar-05 Our Model is Demonstrating its Efficiency 6

7 Our Model Capital Efficiency -- Negative Operating Cycle* 28 Days Day Product Received Product Shipped Customer Payment Supplier Paid Working Capital is a Source of Cash 7 * As of 12/31/04 -- Inventory Days, Approximate AR Days and Ending AP Days

8 Our Model Pre-orders Captures Early Demand and Improves Inventory Forecasting 8

9 Our Model Inventory Velocity Hypothetical Example -- Digital Camera Physical Store Amazon.com Average Selling Price Turns -- TTM Obsolescence Hypothetical Value -- One Year Later Obsolescence Loss Per Week (30% per Year) Average Weeks in Inventory Obsolescence Cost Per Unit As a % of Sales $ $210 $ $ % $ $210 $ $ % Inventory Velocity Translates to Cash Benefit 9

10 Our Model Inventory Velocity -- Trailing Twelve Months (TTM) Gross Margin Inventory Turns Inventory Turns 20 Amazon.com 23% 16 Amazon.com Barnes & Noble Costco Home Depot Best Buy Wal-Mart 28% 13% 33% 25% 23% Gross Margin Best of Both Worlds -- High Turns, High Margins 11 2 Costco Wal-Mart Best Buy Barnes & Noble 10% 22.5% Home Depot 35% 10 Source: MultexIR Stock Screener (Most Recent Available Data as of February 16, 2005) --AMZN: Inventory Turns = TTM COGS / TTM Average Inventory

11 Our Model Technology Performance / $ Optical Fiber -- Doubles 9 months (bits per second) Data Storage -- Doubles 12 months (bits per square inch) Silicon (Moore s s Law) -- Doubles 18 Months (number of transistors) 0 Years 5 Source: Vinod Khosla, Kleiner Perkins Caufield & Byers, 2000 Internet Penetration / Users Web Services Bandwidth Wireless Instant On Third Parties Technology is our Ally -- It Will Only Get Better 11

12 Amazon.com Our Results 12

13 Our Results Free Cash Flow* -- TTM ($MM) $117 ($13) $286 ($169) $76 ($89) ($79) $12 $477 $440 Q4 04 Operating Income Change in Accounts Payable Change in inventories Depreciation CapEx Net Interest Expense & Other Stock-based Compensation & Other, Net Leverage in Earnings, Working Capital and Fixed Assets * Operating Cash Flow Less Capital Expenditures, see appendix Q4 04 FCF 13

14 Our Results Free Cash Flow ($MM) $500 $346 Up 38% $477 $0 ($265) ($500) Long Term Goal -- Optimize Free Cash Flow Per Share 14

15 Our Results Share Count (MM) Shares Outstanding Employee Stock Awards Outstanding Efficiently Managing Dilution -- Flat Y/Y 15

16 *ROIC = Free Cash Flow divided by 5 quarter average of (Total Assets less Total Current Liabilities) Our Results Return on Invested Capital -- TTM 50% 38% 44% 25% 0% Q4 03 Q4 04 Long-term Expectation: Triple Digit ROIC 16

17 *See Appendix Our Results Fourth Quarter Highlights* ($MM) Q4 03 Q4 04 Change Free Cash Flow -- TTM $ 346 $ % Net Sales $1,946 $ 2,541 31% Gross Profit $ 427 $544 28% Gross Margin 21.9% 21.4% (51 bps) Direct Segment Operating Expenses $ 274 $ % As a % of Sales 14.1% 14.4% 37 bps Consolidated Segment Operating Income $ 153 $ % Consolidated Segment Operating Margin 7.9% 7.0% (88 bps) Fueled by Lower Prices and Free Shipping 17

18 Our Results Net Sales -- TTM ($MM) $7,000 $5,264 Up 31% $6,921 $3,500 $0 Q4 03 Q4 04 F/X Neutral Net Sales F/X Impact 26% Growth Excluding F/X Impact 18

19 Our Results Net Sales Mix -- TTM ($MM) 2000 Worldwide Sales Mix 2004 Worldwide Sales Mix $104 $133 $481 17% 4% $1,686 24% 2% $2,176 79% $5,102 74% Media Electronics and Other General Merchandise Other (Merchant.com & Misc. Marketing) 19

20 Our Results Net Sales Mix -- TTM ($MM) North America $104 $480 4% 20% $1,797 75% International $1.5 $0 <1% N/A North America $130 $1,128 3% 29% $2,589 67% International $558 18% $2 N/A $379 >99% Media Electronics and Other General Merchandise Other ( Merchant.com and Misc. Marketing) $2,513 82% 20

21 Our Results International Sales -- TTM ($MM) $3,200 Up 53% $3,074 40% Growth Excluding F/X Impact $1,600 $2,005 44% of WW Revenue From International up from 38% in 2003 (UK, Germany, France, Japan, & China) 49% of Revenue From Shipments to Customers Outside of U.S. (Including Exports) Operating Profit up 116% to $169 $0 5.5% Operating Margin, up from 3.9% Q4 03 Q4 04 Long Term Expectation -- 50%+ of Sales to Customers Outside the US 21

22 Our Results Gross Profit -- TTM ($MM) $1,800 25% Up 27% $1, % $1,400 $1, % 23% $1,000 Q4 03 Q4 04 Gross Profit Gross Margin Objective: Maximize Profit Dollars, Not Margin 21% 22

23 * Operating expenses less Stock-based compensation and Other operating expense (income) Our Results Direct Segment Operating Expenses* -- TTM 40% Sales Growth % Y/Y 34% 31% 20% 17% Opex as a % of Sales 24% 16% 10% Opex Growth % Y/Y 0% Q4 03 Q4 04 Leveraging Cost Structure 23

24 * Operating income less Stock-based compensation and Other operating expense (income), see appendix Our Results Consolidated Segment Operating Income* -- TTM Operating Income Operating Margin ($MM) $600 Up $129MM $490 8% 6.9% Up 22bps 7.1% $361 $300 6% $0 4% Q4 03 Q4 04 Q4 03 Q4 04 Long Term Expectation -- Low Double Digit Operating Margins 24

25 Amazon.com Our Strategy 25

26 Our Strategy Vision Earth s Biggest Selection Build a place where people can find and discover anything they want to buy online Earth s Most Customer-Centric Company Start with the customer and work backwards 26

27 Price Customer Experience Pillars I N N O V A T I O N 27 Selection Convenience

28 Selection Leveraging the Platform Amazon.com as Seller Our Inventory Our Product Detail Pages Marketplace / Merchants@ 3 rd Party Inventory Our Product Detail Pages Over 850,000 Active Seller Accounts*; up 35% Y/Y 28 *Active Seller Accounts are those with an order from one of our customers in the last 12 months

29 Selection Toys in Japan & Germany 2 nd Best-Selling Store on a per Unit Basis Behind Books For Introductory Quarter 29

30 Selection Third Party -- Marketplace 30

31 Selection Third Party -- Marketplace 31

32 Selection Third Party -- Amazon.com 32

33 Selection Beauty -- Amazon.com 33

34 Selection Health & Personal Care 34

35 Our Strategy Leveraging our Platform Amazon.com as Seller Syndicated Stores } 74% of Units* Our Inventory Our Product Detail Pages Our Technology & Inventory Co-branded Partner Websites Marketplace / Merchants@ 26% of Units* 3rd Party Inventory Our Product Detail Pages Merchant.com *Q Our Technology Powers Partner Websites 35

36 Our Strategy Syndicated Stores Others: CDNow, HMV, Virgin, WaldenBooks, Waterstones 36

37 Our Strategy Merchant.com Other Partners: NBA.com, Bombay Company & DVF 37

38 Global Selection Books Music/Video DVD/Rental* Video Games & Software Electronics Toys & Baby Tools & Hardware Kitchen & Housewares Magazines Office Products Apparel & Accessories Sports & Outdoors Gourmet Food Jewelry & Watches Health & Personal Care Beauty Musical Instruments Third Party Sellers Marketplace Amazon.com Amazon.co.uk Amazon.de Amazon.co.jp Amazon.fr / 04* Amazon.ca Joyo.com Expect More Category and Country Expansion Over Time 38

39 Convenience Look and Search Inside the Book Look & Search Inside Hundreds of Thousands of Titles 39

40 Convenience DVD Rentals in the UK 40

41 Convenience Customer Self Service Contacts Per Unit Down >20% Y/Y 41

42 Convenience A9.com Improving E-Commerce Search 42

43 Convenience A9 Yellow Pages 43

44 Convenience Guaranteed Accelerated Delivery 44

45 Convenience Amazon Prime 45

46 Price Jewelry 46

47 Price Books Everyday Discounts Across Wide Assortment 47

48 Price Free Shipping U.S. U.K. JP FR La livraison gratuite à partir de 20 euros d'achats! DE CA CN On Orders Over 100 RMB 48

49 Our Strategy Our Virtuous Cycle Lower Cost Structure Lower Prices Selection & Convenience Sellers Growth Customer Experience Traffic Nearly 47MM Active Customer Accounts 49

50 Amazon.com Summary The Online Retail Model is Advantaged We Face Many Challenges and Many Opportunities -- We Are: Relentlessly Improving Customer Experience -- Expanding Selection and Convenience While Lowering Prices Demonstrating Sustained Operational Progress Well Positioned for Growth Innovation is the Foundation of Everything We Do Focused on Optimizing Free Cash Flow per Share 50

51 Q & A

52 Appendix

53 Free Cash Flow Reconciliation -- TTM ($MM) Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Operating Cash Flow $392 $393 $410 $490 $567 Less: Purchases of Fixed Assets Free Cash Flow $346 $344 $354 $420 $477 53

54 Consolidated Segment Operating Income Reconciliation ($MM) Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Consolidated Segment Operating Income $153 $117 $101 $95 $177 Less: Stock-Based Compensation Other Operating Expense (Income) -- (1) (7) 5 (5) GAAP Operating Income $138 $110 $86 $81 $162 54

55 Consolidated Segment Operating Income Reconciliation -- TTM ($MM) Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Consolidated Segment Operating Income $361 $411 $444 $466 $490 Less: Stock-Based Compensation Other Operating Expense (Income) 3 1 (7) (3) (8) GAAP Operating Income $271 $342 $386 $416 $440 55