Press release Announces Profitability In U.S.-Based Book Sales, Financial Results for Fourth Quarter 1999

February 2, 2000 at 4:30 PM EST

90 percent quarter-to-quarter growth is's fastest ever as a public company; customer total now over 17 million; rated the No. 1 place to save money on the Internet;
more than 1 million registered users and 1.5 million listings across Auctions, zShops, and

SEATTLE--(BUSINESS WIRE)--February 2, 2000--Fueled by strong sales in its new consumer electronics store,, Inc. (NASDAQ: AMZN) today announced that net sales for the fourth quarter of 1999 were $676 million, an increase of 167 percent over net sales of $253 million for the fourth quarter of 1998.

Pro forma operating loss for the fourth quarter of 1999 was $175 million, compared to a pro forma operating loss of $18 million in the fourth quarter of 1998. Fourth-quarter pro forma net loss of $185 million, or $0.55 per share, compared with a pro forma net loss of $22 million, or $0.07 per share, in the fourth quarter of 1998.

Net sales for all of 1999 were $1.64 billion, a 169 percent increase over net sales of $610 million reported for all of 1998. Pro forma net loss for 1999 was $390 million, or $1.19 per share, compared with a pro forma net loss in 1998 of $74 million, or $0.25 per share. announced that cumulative customer accounts increased by 3.8 million during the fourth quarter to more than 16.9 million at December 31, 1999, an increase of more than 170 percent from 6.2 million customer accounts at December 31, 1998. Cumulative customer accounts now stand at over 17 million. Repeat customer orders represented more than 73 percent of orders in the fourth quarter, up from 72 percent in the previous quarter.

Among new initiatives, opened five new retail stores around the world during the quarter, along with its service. As recently as 19 months ago,'s U.S. Books business represented 100 percent of's sales. Despite 66 percent year-over-year revenue growth, U.S. Books accounted for less than half of total company sales in the quarter as customers around the world chose for an increasingly wide array of products.

"This was our fastest sequential growth as a public company, and we are grateful that so many customers chose for such a broad range of products," said Jeff Bezos, founder and CEO. "We did a good job delivering for customers this holiday. The last order, just under the wire, was placed by a customer at 8:05 p.m. on December 23, left our dock at 1:05 a.m. on December 24, and was delivered to the customer in Honolulu at 3:55 p.m. on December 24. It was a Deluxe Scrabble set."

"This holiday season, made sure it did the best thing it could do in building a long-term franchise and ensuring shareholder return--we delivered for our customers," said Joe Galli, president and COO. "In 2000, we expect to do even more than in 1999, while at the same time driving operational excellence and platform leverage. In addition, I'd also like to welcome our newest partners, NextCard,,,, Audible, and"

Regarding's ongoing expansion, Warren Jenson, chief financial officer, said, "Our U.S. Books business was profitable in the fourth quarter, and we expect it will be profitable in 2000. We expect strong year-over-year sales growth in the first quarter, and our outlook for growth in 2000 remains strong. We expect overall gross margin will approach 20 percent in the first quarter of 2000 and we expect further improvement in gross margin during 2000. And we expect that in 2000, our overall operating loss will decrease significantly as a percentage of sales."

The company reported that its overall fulfillment expenses were 16 percent of sales, up from 10 percent in the fourth quarter of 1998. In addition, the company reported approximately $39 million in total inventory-related charges in the fourth quarter. A live Webcast of the company's fourth quarter 1999 financial results conference call can be heard at 2:00 p.m. PST/5:00 p.m. EST today at The call will also be archived and available for one week.

Recent Highlights

Customer Experience
Heads-down focus on customers helped continue to improve customer experience and grow brand and reach during the fourth quarter. Highlights include:

  • was rated the No. 1 place to save money on the Internet, as rated by online shoppers in a nationwide survey by Opinion Research Corp.
  • was rated the No. 1 shopping destination for 42 percent of online shoppers during the holiday season, according to a survey of online shoppers by Ernst & Young.
  •'s reach climbed to 25.6 percent and unique visitors grew to 15.9 million in December, making it the No. 7 Web property in the month, according to Media Metrix.
  • Well over 99 percent of holiday orders were shipped in time to meet holiday deadlines-including even orders placed as late as December 23.
  • The company experienced peak shipping of approximately $16 million in one day, more than total company sales in the entire year of 1996. The ability to serve this kind of peak demand was the result of the company's commitment to serving customers and year-long investment in building out its worldwide distribution capability.
Customer Spending Trends
In the area of strengthening relationships with customers, announced that 1999 sales per customer who purchased in 1999 were $116, up from $106 for 1998.

Strategic Alliances continued to expand the list of online partners with whom it delivers an expanded set of products and services to its customers. During the fourth quarter and so far in 2000, has announced partnerships with NextCard,,, Audible, and, as well as an expanded partnership. In aggregate, these partnerships represent more than $500 million in revenue commitments to over the next five years.

International Expansion
Just one year after launch,'s European and a combined annual run rate of more than $280 million, with $71 million in combined sales in the fourth quarter, up over 360 percent from the fourth quarter of 1998. During the quarter, both stores added music to their existing bookstores, as well as local Auctions and zShops services. In the first-ever Media Metrix ratings for Europe, both and were ranked the No. 1 e-commerce sites and the No. 10 most-visited sites overall in their respective countries. Over 19 percent of all revenues came from customers outside the U.S. in the fourth quarter.

Even as continued to broaden its product lines, traditional stores increased their popularity with online shoppers. In the fourth quarter, book sales from the company's U.S. base extended the company's lead as the No. 1 online bookstore, with strong revenue growth to $317 million, up more than 66 percent from the fourth quarter of 1998. U.S.-based book sales have now achieved an annualized run rate of $1.2 billion. From the third quarter to the fourth quarter, the growth alone (in dollar terms) of U.S.-based book sales was greater than the total fourth-quarter sales of any other online book retailer.'s bookstore, with its large and growing community of millions of book lovers, was ranked as the No. 1 online book retailer by Forrester PowerRankings, Jupiter Communications, and Gomez Advisors, Inc.

In the fourth quarter, U.S.-based Music sales reached $78 million, up more than 136 percent from the fourth quarter of 1998, putting the business solidly over a $300 million annualized run rate. During 1999,'s Music Store launched an improved classical music store, enhanced recommendation features, and additional services to promote independent artists via Advantage. became the first major online music retailer to dedicate an area of its store to free, full-length song downloads from established artists and major-label performers and continues to offer the largest selection of free promotional song downloads from major-label artists.'s Music Store has dominated industry polls and was ranked as the No. 1 overall Internet music store by Gomez Advisors in its two most recent scorecards, was ranked No. 1 in the first Forrester PowerRankingsTM for online books, music, and video retailers, won the Harris Interactive ecommercePulseSM Excellence Award for the highest overall satisfaction rating among online music and video retailers, and won the Midemnet Award 2000 for the best music shopping/digital distribution Web site.

DVD & Video
U.S. DVD and video sales grew to $64 million in the fourth quarter, up over 500 percent from the fourth quarter of 1998. Thus, in just one year, DVD & Video has grown to over $250 million in annualized sales, making it the leader in online video sales overall, in online VHS sales, and in online DVD sales. In fact, DVD sales now account for more than half of the revenues in this business line. DVD & Video was ranked the No. 1 online video store by Gomez Advisors and Forrester PowerRankings. Other recent initiatives include partnerships with theatrical studios, such as with DreamWorks, streaming video clips (including deleted scenes from The Blair Witch Project and Austin Powers: The Spy Who Shagged Me), and a TV partnership with Lifetime's Intimate Portraits.

In the fourth quarter, sales of children's products exceeded $95 million, the significant majority of which were toys. In November, Toys saw the launch of it Video Games Store. Toys has been rated the best online toy store in an MSNBC survey, beating out a number of longer-established players, and was ranked the No. 1 toys and games store by Forrester Research.

Electronics's Electronics and Software Store saw strong growth in the fourth quarter, with sales in December alone exceeding cumulative sales during the store's first five months of operation. In December,'s overall No. 1 product by dollar sales across all product lines was the 3Com Palm V Connected Organizer, and electronics products accounted for six of's top 10 revenue-generating items in the month.

Despite being a new store,'s reputation as the best place for customers to find and discover consumer electronics has been widely recognized. In December 1999, was ranked the No. 1 online electronics store by Gomez Advisors, Inc., a leading provider of online research and analysis. In addition, tied for the top overall customer satisfaction rating among online electronics retailers in a December 1999 poll conducted by Harris Interactive, a leading Internet-based market research and polling firm. And more than half the Electronics customers surveyed recently by described their online shopping experiences as better than their experiences in brick-and-mortar stores. Significantly, 90 percent of customers surveyed said they would buy electronics from again. In addition, the growth and recognition of's new Electronics & Software Store has led to a growing interest among manufacturers in selling electronics online. "We've enjoyed successful alliances with Hewlett Packard, Xerox, Olympus, and others, and look forward to working with additional manufacturers as we bring our customers the latest and greatest in electronics," said Chris Payne, vice president and general manager of's Electronics Group.

Home Improvement
The Home Improvement Store saw strong sales in Tools & Equipment during the holidays. The store, launched on November 10, offers Earth's largest selection of tools and equipment as well as a broad selection of other home improvement products. Developed and launched in 60 days, the Home Improvement Store has enabled a broad set of manufacturers, such as Porter Cable, Delta, Black & Decker/DeWalt, and Makita, to offer their entire selection of products through

Auctions, zShops, and
During the fourth quarter,'s three major marketplaces, Auctions, zShops, and, surpassed a combined 1 million registered users and 1.5 million active listings. continued to integrate these services with its retail stores to deliver a better overall value and experience for customers. Examples include a partnership with DreamWorks to promote Stuart Little and American Beauty (72 auctions, averaging 27 bids per auction, total gross merchandise sales of over $25,000, yielding an average of over $400 per item) and with Oprah Winfrey (25 auctions, averaging 38 bids per auction, total gross merchandise sales of over $130,000, yielding an average of over $6,000 per item).

In less than three months of operation, has achieved average close rates in excess of 50 percent and average auction closing prices of over $500. Particularly strong have been special sales, such as the Halper Collection and the Secretariat sale, which achieved over 99 percent close rates, experienced substantially higher average closing prices, and saw a majority of items sold well above their presale high estimate.

About, Inc. (, Inc., and its subsidiaries) is the Internet's No. 1 music, No. 1 DVD and video, and No. 1 book retailer. (NASDAQ: AMZN) opened its virtual doors on the World Wide Web in July 1995 and today offers Earth's Biggest Selection, along with online auctions and free electronic greeting cards. lists more than 18 million unique items in categories including books, CDs, toys, electronics, videos, DVDs, home improvement products, software, and video games. Through zShops, any business or individual can sell virtually anything to's more than 17 million customers, and with Payments, any seller can accept credit card transactions, avoiding the hassles of offline payments. The company also participates in, the leading auction site for guaranteed art, jewelry, and collectibles, at seeks to be the world's most customer-centric company, where customers can find and discover anything they may want to buy online.'s All Product Search scours the Web to help customers find merchandise that is not available at, Auctions, or zShops, making the shopping destination to find anything. operates two international Web sites: in the United Kingdom and in Germany. It also operates the Internet Movie Database (, the Web's comprehensive and authoritative source of information on more than 150,000 movies and entertainment programs and 500,000 cast and crew members dating from the birth of film in 1892 to the present. has invested in leading Internet retailers that are improving the lives of customers by making shopping easier and more convenient:, the only company that offers car buyers the control of auto purchasing online with ongoing service and support from local dealerships, at;, an online retail and information source for health, beauty, wellness, personal care and pharmacy, at;, the online leader for pet products, expert information, and services, at;, the first fully integrated Internet grocery-shopping and home-delivery service-with operations in Seattle; Portland, Oregon; and Southern California-at;, which offers brand-name sporting goods at prices from 20 to 90 percent off retail, at; and, the leading Internet retailer of luxury and premium products and the Web's No. 1 retailer of watches and jewelry, at also has a minority interest in, which brings together leading retailers with gift registry, expert advice, and personalized gift suggestions to help everyone give better gifts, at; and NextCard, Inc., considered the industry's leading issuer of consumer credit on the Internet, at

Historical results of operations are preliminary and unaudited. This press release also contains forward-looking statements, including statements regarding expectations of future profitability of the U.S. books business, sales growth, gross margin, and improvement in operating loss, all of which are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including the rate of growth of the Internet and online commerce, the amount that invests in new business opportunities and the timing of those investments, customer spending patterns, the mix of products sold to customers, the mix of revenues derived from products sales as compared to services, risks of inventory management, and risks of distribution and fulfillment throughput and productivity. Other risks and uncertainties include's limited operating history, anticipated losses, potential fluctuations in quarterly operating results, seasonality, consumer trends, competition, risks associated with distribution center expansion, adverse consequences arising from system interruptions, risks associated with management of potential growth, risks related to auction and zShops services, risks related to fraud and Payments, and risks of new business areas, international expansion, business combinations, and strategic alliances. More information about factors that potentially could affect's financial results is included in's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 1998 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999, and September 30, 1999.

Note on Financial Presentation
Financial results are prepared in accordance with U.S. generally accepted accounting principles. Pro forma financial results exclude amortization of goodwill and other intangibles, equity in losses of equity-method investees, stock-based compensation costs and merger-, acquisition-, and investment-related costs. The Securities and Exchange Commission is reviewing the financial statement classification of fulfillment costs and other items by a number of e-commerce companies, including defines fulfillment costs as costs directly attributable to the operation of its distribution centers and customer service centers, and classifies these costs in marketing and sales expense. The activities of's distribution centers consist of receiving, inspecting, and warehousing inventories of product purchased from outside suppliers and picking, packaging, and preparing customers' orders for shipment. The SEC has advised the company that it may decide to require that certain distribution center costs be classified as costs of sales. In that case, will reclassify any fulfillment costs as required and the company's gross margin would be correspondingly affected. Any such reclassification would not impact's sales, operating profit or loss, net profit or loss, or cash flow.

Consolidated Statements of Operations
(in thousands, except per share data)
			      Quarter Ended		   Year Ended
			       December 31,  	           December 31,
			    1999         1998	        1999	     1998

Net sales		  $676,042     $252,829     $1,639,839     $609,819
Cost of sales		   588,196      199,476      1,349,194      476,155
Gross profit		    87,846       53,353        290,645      133,664

Operating expenses:
  Marketing and sales	   179,424       48,378        413,150      132,654  
  Product development	    57,720       17,194        159,722       46,424  
  General and 
     administrative	    26,051        5,413         70,144       15,618  
  Stock-based compensation  14,049          299         30,618        1,889  
  Amortization of goodwill 
     and other intangibles  82,301       20,452        214,694       42,599  
  Merger, acquisition and 
     costs 		     2,085  	  1,281		 8,072	      3,535  

Total operating expenses   361,630       93,017        896,400      242,719  
Loss from operations	  (273,784)     (39,664)      (605,755)    (109,055) 
Interest income		     8,972        4,264         45,451       14,053  
Interest expense	   (18,142)      (8,622)       (84,566)     (26,639)
Other income (expense)	      (366)           -          1,671            -   
  Net interest expense 
     and other		    (9,536)      (4,358)       (37,444)     (12,586) 
Net loss before equity 
     in losses of equity 
     method investees	  (283,320)     (44,022)      (643,199)    (121,641) 
Equity in losses of equity 
     method investees	   (39,893)      (2,405)       (76,769)      (2,905) 
Net loss		 $(323,213)    $(46,427)     $(719,968)   $(124,546) 
Basic and diluted loss 
     per share		    $(0.96)      $(0.15)        $(2.20)	     $(0.42)
Shares used in computation 
     of basic and diluted 
     loss per share 
		(Note 1)   338,389      308,778        326,753      296,344  
Pro Forma Results (Note 2) 

Pro forma loss from operations,
   excluding amortization of 
   goodwill and other intangibles,
   stock-based compensation costs 
   and merger, acquisition and 
   costs     		 $(175,349)    $(17,632)     $(352,371)    $(61,032) 
Pro forma net loss, excluding 
   amortization of goodwill and 
   other intangibles, equity in 
   losses of equity method 
   investees, stock-based 
   compensation costs and merger, 
   acquisition and 
   costs		 $(184,885)    $(21,990)     $(389,815)    $(73,618) 
Pro forma basic and diluted 
   loss per share, excluding 
   amortization of goodwill 
   and other intangibles, 
   equity in losses of equity
   method investees, stock-based 
   compensation costs and merger, 
   acquisition and 
   costs 		    $(0.55)      $(0.07)        $(1.19)	     $(0.25)
Shares used in computation 
   of pro forma basic and 
   diluted loss per share
		(Note 1)   338,389  	308,778        326,753      296,344  

Note 1: The Company effected a three-for-one stock split and two-for-one stock split on January 4, 1999 and September 1, 1999, respectively. Each stock split was in the form of a stock dividend to stockholders of record on December 18, 1998 and August 12, 1999, respectively. Accordingly, the accompanying consolidated balance sheets and statements of operations have been restated to reflect the splits.

Note 2: Pro forma results for the quarters and years ended December 31, 1999 and 1998 are presented for informational purposes only and are not prepared in accordance with generally accepted accounting principles. These results present the operating results of, excluding charges of $138.3 million and $24.4 million for the 3-month periods ended December 31, 1999 and 1998, and $330.2 million and $50.9 million for the years ended December 31, 1999 and 1998, respectively, related to amortization of goodwill and other intangible assets, equity in losses of equity method investees, stock-based compensation and merger, acquisition and investment related costs.

Consolidated Balance Sheets
(in thousands, except per share data)
				      DECEMBER 31,     DECEMBER 31, 
					  1999		  1998 
Current assets:					 
  Cash		 			$116,962 	 $25,561  
  Marketable securities			 589,226 	 347,884  
  Inventories, net	 		 220,646 	  29,501  
  Prepaid expenses and 
     other current assets		  85,344 	  21,308  
  Total current assets	       	       1,012,178 	 424,254  
Fixed assets, net			 317,613 	  29,791  
Goodwill, net				 534,699 	 174,052  
Other purchased 
   intangibles, net			 195,445 	   4,586  
Investments in equity 
   method investees			 226,727 	   7,740  
Other investments		 	 144,735	       -
Deferred charges and other	 	  40,154 	   8,037  
	Total assets	     	      $2,471,551 	$648,460  
Current liabilities:					 
  Accounts payable			$463,026 	$113,273  
  Accrued expenses and 
    other current liabilities		 126,017 	  34,413  
  Accrued advertising			  55,892 	  13,071  
  Deferred revenue			  54,790 	       -
  Interest payable			  24,888 	      10  
  Current portion of 
     long-term debt and other		  14,322 	     808  
  Total current liabilities		 738,935 	 161,575  
Long-term debt and other     	       1,466,338 	 348,140  
Stockholders' equity:					 
  Preferred stock, $0.01 par value:	 
    Authorized shares -- 150,000
    Issued and 
       outstanding shares -- none   	       -	       -    
  Common stock, $0.01 par value:				 
    Authorized shares -- 1,500,000				 
    Issued and outstanding 
	shares -- 345,155 and 318,534				  
	shares at December 31, 1999 
	and December 31, 1998, 
	respectively	 	 	   3,452 	   3,186  
  Additional paid-in capital 	       1,195,540 	 298,537  
  Note receivable for common stock        (1,171)	  (1,099) 
  Stock-based compensation		 (47,806)	  (1,625) 
  Accumulated other 
     comprehensive income (loss)	  (1,709)	   1,806  
  Accumulated deficit			(882,028)	(162,060)		    
  Total stockholders' equity		 266,278 	 138,745 		 
  Total liabilities and 
     stockholders' equity    	      $2,471,551 	 $648,460
Note 1: The Company effected a three-for-one stock split and two-for-one stock split on January 4, 1999 and September 1, 1999, respectively. Each stock split was in the form of a stock dividend to stockholders of record on December 18, 1998 and August 12, 1999, respectively. Accordingly, the accompanying consolidated balance sheets and statements of operations have been restated to reflect the splits.