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pww.comAmazon.com Inc., Q4 2008 Earnings Call, Jan-29-2009 - NasdaqGS:AMZN

NasdaqGS:AMZN

Thomas Szkutak [Executives] 💬

Thomas Szkutak, the Chief Financial Officer of Amazon.com, Inc., provided the following information and insights during the Q4 2008 earnings call:

  1. Financial Results Overview:

    • Trailing 12-month free cash flow grew 16% to $1.36 billion.
    • Return on invested capital (ROIC) was 41%, down from 55%.
    • Worldwide revenue grew 18% to $6.7 billion, or 24% excluding the $320 million unfavorable impact from year-over-year changes in foreign exchange rates.
    • Media revenue increased to $3.64 billion, up 9%, or 15% excluding FX.
    • EGM (Electronics, General Merchandise, etc.) revenue increased to $2.89 billion, up 31%, or 36% excluding FX.
    • Worldwide EGM increased to 43% of worldwide sales, up from 39%.
    • Worldwide unit growth was 28%.
    • Active customer accounts exceeded 88 million, up 16%.
    • Worldwide active seller accounts were more than 1.5 million, up 18%.
    • Seller units were 27% of total units versus 26%.
    • Worldwide gross profit was $1.35 billion, up 15%.

  2. Operating Expenses:

    • Fulfillment, marketing, technology and content, and general and administrative (G&A) expenses combined were $989 million, or 14.7% of sales, down 9 basis points year-over-year.
    • Fulfillment expenses were $530 million, or 7.9% of revenue compared with 8.2%.
    • Technology and content expenses were $236 million, or 3.5% of revenue compared with 3.4%.

  3. Segment Results:

    • North America Segment:
      • Revenue grew 18% to $3.63 billion.
      • Media revenue grew 7% to $1.75 billion.
      • EGM revenue grew 30% to $1.73 billion, representing 48% of North America revenues, up from 43%.
      • North America gross profit grew 12% to $781 million and gross margin decreased 114 basis points to 21.5%.
      • North America segment operating income declined 15% to $130 million, a 3.6% operating margin.
    • International Segment:
      • Revenue grew 19% to $3.07 billion.
      • Media revenue grew 12% to $1.89 billion, or 22% excluding FX.
      • EGM grew 32% to $1.16 billion, or 46% excluding FX.
      • International gross profit grew 20% to $567 million, or grew 32% excluding the impact from foreign exchange rates, while gross margin increased 23 basis points to 18.5%.
      • International segment operating income increased 31% to $229 million, a 7.4% operating margin.

  4. Consolidated Segment Operating Income (CSOI):

    • CSOI grew 9% to $359 million, or 5.4% of revenue, down 44 basis points year-over-year.
    • Excluding the $26 million unfavorable impact from foreign exchange rates, CSOI grew 17%.

  5. GAAP Operating Income:

    • Increased $1 million to $272 million, or 4.1% of net sales.

  6. Income Tax Expense:

    • Was $79 million in Q4, or 26% rate for the quarter.
    • In 2008, paid $53 million in cash taxes.

  7. GAAP Net Income:

    • Was $225 million, or $0.52 per diluted share, compared with $207 million and $0.48 per diluted share.

  8. Full Year Results:

    • Revenue grew 29% to $19.17 billion, or 28% excluding $127 million favorable impact from year-over-year changes in FX.
    • North America revenue grew 26% to $10.23 billion and international grew 33% to $8.94 billion, or 31% year-over-year growth, excluding the year-over-year changes in foreign exchange rates.
    • Consolidated segment operating income (CSOI) grew 29% to $1.09 billion, or 28% excluding $10 million of favorable year-over-year impact from foreign exchange, and operating margin remained at 5.7%.
    • GAAP operating income grew 28% to $842 million, or 4.4% of net sales.

  9. Balance Sheet:

    • Cash and marketable securities increased $615 million year-over-year to $3.73 billion.
    • Inventory increased 17% to $1.4 billion, and inventory turns were 12.2, down half a turn from prior year.
    • Accounts payable increased 29% to $3.59 billion, and accounts payable days increased to 62 from 57 in the prior year.
    • Investment in net fixed assets increased $311 million from a year ago to $854 million.
    • 2008 capital expenditures were $333 million.

  10. Guidance:

    • For Q1, expected net sales of between $4.525 billion and $4.925 billion, a growth of between 9% and 19%.
    • GAAP operating income to be between $125 million and $210 million, or between 37% decline and 6% growth.
    • Consolidated segment operating income to be between $200 million and $285 million, or between 23% decline and 10% growth.

  11. Response to Questions:

    • Regarding sales tax, Amazon collects in many states in the US and jurisdictions outside the US, and has good businesses in those geographies.
    • On Prime memberships, there is very good subscriber growth and customers like it, with further evidence during the holiday season.
    • The active seller account growth is attributed to a heavy focus on improving the seller experience over the past few years.
    • On web services, the current macroeconomic environment opens up conversations with enterprises looking for ways to save money, which aligns with the benefits of cloud computing.
    • On hedging, Amazon is not using hedging instruments but relies on natural hedging due to pricing in local currencies and generating cash flows in those geographies.

  12. Closing Comments:

    • No specific closing comments were provided by Thomas Szkutak; the call was concluded by Rob Eldridge and Jeff Bezos.

Rob Eldridge [Executives] 💬

During the Q4 2008 earnings call for Amazon.com, Inc., Rob Eldridge, the Vice President of Investor Relations, provided the following statements:

  1. Opening Remarks:

    • Welcomed attendees to the Q4 '08 financial results conference call.
    • Mentioned that Thomas Szkutak, the CFO, and Jeff Bezos, the Founder and CEO, would be available for Q&A.

  2. Forward-Looking Statements Disclaimer:

    • Noted that the discussion and responses to questions reflect management's views as of January 29, 2009, and include forward-looking statements.
    • Highlighted that actual results may differ materially and directed listeners to additional information about factors that could impact financial results, found in the press release and SEC filings, including the most recent Annual Report on Form 10-K.

  3. Non-GAAP Financial Measures Disclosure:

    • Encouraged listeners to have the press release in front of them, which includes financial results, metrics, and commentary on the quarter.
    • Mentioned that during the call, certain non-GAAP financial measures would be discussed and that additional disclosures regarding these measures, including reconciliations with comparable GAAP measures, could be found in the press release, slides accompanying the webcast, and SEC filings, all posted on the IR website.

  4. Comparisons and Share Count:

    • Unless otherwise stated, all comparisons in the call would be against the results for the comparable period of 2007.
    • Noted that the combination of common stock and stock-based awards outstanding was 446 million shares, compared to 435 million.

  5. Transition to CFO Presentation:

    • Turned the call over to Thomas Szkutak for a review of the fourth-quarter financial results.

  6. Closing Remarks:

    • Thanked everyone for joining the call and participating in the Q&A session.

    • Announced that a replay would be available on the Investor Relations website at least through the end of the quarter.

    • Expressed appreciation for interest in Amazon.com and looked forward to speaking again in the next quarter.