Tom Szkutak, SVP & CFO Morgan Stanley Technology Conference March 4, 2009
This presentation may contain forward-looking statements which are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, 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, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, 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, risks related to new products, services and technologies, system interruptions, indebtedness, government regulation and taxation, payments, and fraud. In addition, the current global economic climate amplifies many of these risks. 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 most recent Annual Report on Form 10-K and subsequent filings. Additional information relating to certain of our financial measures contained herein is available in the appendix to our presentation, our most recent earnings release and at our website at www.amazon.com/ir under ‘Financial Documents’.
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Agenda
• Our Results • Our Strategy
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Financial Focus
• Maximize Profit Dollars, Not Margin • Optimize Free Cash Flow • Return On Invested Capital (ROIC)
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MM
Free Cash Flow -- TTM
(1)
Up 16% Y/Y
$1,181
$1,364
$477
Long Term Goal – Optimize Free Cash Flow
(1) Free Cash Flow, a non-GAAP financial measure, is GAA P Operating Cash Flow Less Purchases of Fixed A ssets. See appendix for a reconciliation of Operating Cash Flow to Free Cash Flow.
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Free Cash Flow -- TTM
MM $812 $580 $(232) $(46) $287 $(333) $(159) $(128)
$1,364
$275 $842
Leverage in Earnings, Working Capital
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Capital Efficiency -- Operating Cycle -- TTM
(1)
26 Days Day 0 30 35 61
Product Received
Product Customer Shipped Payment
Supplier Paid
Working Capital is a Source of Cash
(1) A s of 12/31/ 08 – A v erage Trailing Twelv e Month (TTM) Inv entory Day s, A R Day s and AP Day s.
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Shares
MM
434
435
446
Efficiently Managing Dilution
(1) (2) The Company repurchased 8.2 million shares in 2006, 6.3 million shares in 2007 and 2.2 million shares in 2008. Does not include shares issuable upon conv ersion of outstanding conv ertible debt.
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MM
Net Sales -- TTM
$19,166 $14,835
$6,921
2008 Up 29% Y/Y, Up 28% Excluding Effect of F/X
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Segments and Net Sales
Segments
• North America • International
Net Sales Categories
• Media • Electronics and Other General Merchandise (EGM) • Other (Amazon Enterprise Solutions, Amazon Web Services, Co-Branded Credit Card, Misc. Marketing & Other)
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Worldwide Sales Mix -- TTM
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Net Sales Mix -- TTM
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International Sales -- TTM
MM
$8,938
• •
UK, Germany, France, Japan & China 2008 TTM International Sales 47% of TTM WW Sales, up from 45% in 2007 We Expect > 50% of Sales Over Time Shipments to Over 200 Countries Operating Profit up 44% to $648MM Operating Margin of 7.3%
• • • •
2008 Up 33%, Up 31% Excluding Effect of F/X
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Gross Profit -- TTM
MM
Up 27% Y/Y
Objective: Maximize Dollars, Not Margin
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Consolidated Segment Operating Income -- TTM
MM
Up 29% Y/Y
Objective: Maximize Dollars, Not Margin
(1) Consolidated Segment Operating Income (CSOI), a non-GAAP financial measure, excludes Stock -Based Compensation and Other Operating Expense (Income). See appendix for a reconciliation of CSOI to GAA P Operating Income.
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Balance Sheet
(MM) Assets Cash & Marketable Securities Inventories A/R, Current Deferred Tax Assets & Other Total Current Assets Fixed Assets, net Deferred Tax Assets & Other Total Assets Liabilities and Stockholders’ Equity A/P & Other Current Liabilities Long-Term Debt and Other Stockholders’ Equity (Deficit) Total Liabilities & Stockholders’ Equity $1,620 $1,855 $ (227) $3,248 $4,746 $ 896 $2,672 $8,314
Q4 ‘04
$1,779 $ 480 $ 280 $2,539 $ 246 $ 463 $3,248
Q4 '08
$3,727 $1,399 $1,031 $6,157 $ 854 $1,303 $8,314 TTM Free Cash Flow $1,364 MM 12x Turns / 6% of Sales $2,253 MM in “Operating Assets”
Our Model is Demonstrating Its Efficiency
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Return on Invested Capital -- TTM
(1)
Long Term Expectation – Triple Digit ROIC
(1) ROIC = TTM Free Cash Flow div ided by av erage Total A ssets minus Current Liabilities, excluding Current Portion of our Long Term Debt, ov er 5 quarter ends.
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Our Strategy
Earth’s Most Customer Centric Company Three Customer Sets
Start With The Customer And Work Backwards Consumers, Sellers and Developers
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Our Virtuous Cycle
Lower Cost Structure Lower Prices
Selection & Convenience Customer Experience
Sellers
Growth
Traffic Over 88MM Active Customer Accounts, Up 16% Y/Y
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Leveraging Our Platform
73% of Units (1)
Amazon.com
27% of Units (1)
Our Inventory Our Product Detail Pages
Sellers Amazon Enterprise Solutions Amazon Web Services
(1) Q4 2008
Seller Inventory Our Product Detail Pages
Our Technology Powers Partner Websites
Web Scale Computing Simple API’s
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Consumers -- Customer Experience Pillars
• Price • Selection • Convenience
Innovation Is The Foundation
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Everyday Low Pricing
Our objective is not to discount a small number of products for a limited period of time, but to offer low prices everyday and apply them broadly across our entire product range.
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Global Selection
Product Categories Physical Media Electronics Toys Baby Tools & Hardware Home & Garden Apparel & Accessories Sports & Outdoors Jewelry & Watches Health & Personal Care Beauty Shoes Dry Goods Auto Parts & Accessories Digital Media Office Supplies Fabric Motorcycle & ATV Parts & Accessories US '95 '99 '99 '99 '99 '00 '02 '03 '03 '03 '04 '05 '06 '06 '07 '08 '08 '08
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UK '98 '01 '01 '07 '04 '04 '08 '07 '07 '08 '08 '07
Germany France Japan '98 '00 '00 '01 '05 '03 '04 '07 '04 '07 '07 '07 '04 '04 '07 '03 '08 '07 '06 '05 '07 '07 '07 '07 '06 '08 '08 '07 '07 '08
China Canada '04 '02 '04 '08 '04 '06
'06 '06 '06 '06
'08
Convenience – Amazon Prime
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Free Shipping $ 25 £5 € 20 ￥1,500 € 20 CAD 39 49 Yuan
Membership Program
Launch
Annual Fee $ 79
Offering
‘05 ‘07 ‘07 ‘07
Free TwoDay Shipping Free One-Day Delivery Free One-Day Delivery Free Expedited (Same/Next Day) Shipping Free Express (Next/Two-Day) Delivery
£ 48 € 29 ￥3,900 € 49
‘08
25
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Kindle
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MP3 Downloads
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Video On Demand
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Selling On Amazon
Over 1.5MM Active Sellers, Up 18% Y/Y
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Selling On Amazon
MM
~1.3
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Fulfillment By Amazon (FBA)
Available in US, UK, DE & JP; Beta in FR
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Amazon Enterprise Solutions
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Checkout By Amazon
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Amazon Web Services (AWS)
Your Idea
Undifferentiated “Heavy Lifting”
Successful Product
In-The Cloud Infrastructure Services
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AWS
• Massive Compute Power o Elastic Compute Cloud (EC2) • Massive Storage o Simple Storage Service (S3) o SimpleDB o Simple Queue Service • Content Delivery o Amazon CloudFront • Payments and Billing o Flexible Payments Service (FPS) o Amazon DevPay • On-Demand Workforce o Mechanical Turk
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Summary
• The Online Model is Advantaged • We Face Many Challenges and Many Opportunities – We Are: o Relentlessly Improving Customer Experience – Consumers, Sellers and Developers o Leveraging Our Platform o Well Positioned o Focused on Optimizing LT Free Cash Flow • Innovation is the Foundation of Everything We Do
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Appendix
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Free Cash Flow Reconciliation -- TTM
$MM Operating Cash Flow Purchases of Fixed Assets, Including Internal-Use Software and Website Development Free Cash Flow 2003 $393 2004 $566 2005 $733 2006 $702 2007 $1,405 2008 $1,697
(46) $347
(89) $477
(204) $529
(216) $486
(224) $1,181
(333) $1,364
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Consolidated Segment Operating Income Reconciliation -- TTM
$MM Consolidated Segment Operating Income Stock-Based Compensation Other Operating Income (Expense), Net GAAP Operating Income 2003 $361 (88) (3) $270 2004 $490 (58) 8 $440 2005 $566 (87) (47) $432 2006 $500 (101) (10) $389 2007 2008
$849 $1,093 (185) (9) $655 (275) 24 $842
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