Can Amazon.com Turn a Profit?
Dec. 21 -- When is $1 billion in quarterly online sales just not good enough? When you’re Amazon.com, and you spend more than that in the same time frame.
Amazon hopes to achieve the ambitious goal of grabbing 10 percent of the $10 billion expected in U.S. online sales this holiday season. But the Web superstore, which has racked up $866 million in losses for the first nine months of this year, expects to post a fourth-quarter loss of 26 cents a share, thanks in part to gargantuan marketing costs and discounting efforts. Meanwhile, the stock has lost about two-thirds of its value this year, closing Thursday at $22.69. Is Amazon.com’s stock a bigger bargain than the books it’s peddling at discount prices this Christmas? Or does it have further to fall if losses continue and the markets perceive the e-tailing giant as a boring old retailer akin to Wal-Mart?
That’s the question this week’s Gut Check put to fund managers and analysts. Their answer: Amazon has 25 million customers in 150 countries buying everything from books to makeup to cell phones to cars. So far, though, only Amazon’s original book, video and CD product line is showing any profitability, and a slim one at that. Amazon needs to achieve profitability across the board and quick, fund managers say. That’s no short order. Even if it does, they don’t expect the stock to approximate the stratospheric dot-com valuations of last year for a long time — if at all.
The UpsideWhile Amazon still hasn’t turned a profit, the e-tailer’s sales growth has remained strong. The company expects $4 billion in sales in 2001, which would be a 48 percent increase from sales of $2.7 billion expected for this year. Amazon’s sales in 1999 were $1.6 billion.
If overall online sales swell to $184 billion by 2004, as Forrester Research predicts, and Amazon continues to capture at least a 10 percent market share of these sales, Amazon could become quite profitable in 2001 or beyond, says Dan Gillespie, senior portfolio manager of Rydex sector funds Rydex Internet and Rydex Retailing; both have big stakes in Amazon.com.
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