Some AMZN history

Jeff Bezos founded Amazon in 1995 as an online bookstore and brought the company public in 1997, at a price of $1.50 per share (adjusted for splits).

By 2000, the company diversified into distribution of music and films, as well as merchandise for third parties.  AMZN had grown sales to over $2.7 billion.  But it lost $417.5 million for the twelve months–its sixth consecutive year of red ink.  the company’s operating margin was negative.  It had more than $2 billion in debt and a retained deficit of close to $1 billion.

The stock, which had peaked the prior year at $113 and was on its way to $6.  The company survived long enough to hit $4 billion in sales (in 2002), which was apparently the size it needed to break even.  Then things turned up–in a big way.

Not initially a fan…

I’ll admit I wasn’t initially a believer–I was a customer, yes, but not a stockholder.   AMZN seemed to me then to be one of the core “internet cult” stocks.   The AMZN high priestess was Mary Meeker, not in virtue of any ability to read financial statements or project earnings, but because Jeff Bezos was willing to speak directly to her.

I remember attending a brilliant AMZN roadshow.  The company said nothing about itself.  It showed slides of the price appreciation for leaders of prior generations of technology, like ORCL, MSFT or CSCO.  They said that big fortunes would be made in the Internet Generation by those who found internet stars in their infancy.  The crowd went wild.

I think that if AMZN hadn’t capitalized on the internet frenzy  to raise over $1.6 billion in debt capital during 1998-1999, it would not have been able to survive.  On the other hand, it did.

In hindsight, it seems to me also that at first AMZN had more of a vision than a business plan.  It clearly overestimated the size of the online book market and wildly underestimated the amount of spending on physical distribution infrastructure it would have to do to succeed.  To its credit, however, it adjusted.  When it saw its original market mature, AMZN quickly diversified.  By 1999, it was selling music CDs, movie videos, electronics, video games and home improvement products.  And it found enough willing (read: gullible) lenders to finance its capital expansion.

One other lesson AMZN learned quickly.  Soon after it started up, Barnes and Noble launched its own website.  I don’t think BKS did this because it was so enamored of the internet as a source of profits.  Instead, it wanted to make sure that online prices stayed low enough that AMZN–and the threat it posed to BKS’s bricks-and-mortar bookstores–would have maximum trouble earning money.

…but it’s a different company now Continue reading →