Amazon.com, Inc. Q4 2009 Earnings Call Transcript

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Amazon.com, Inc. (AMZN)

Q4 2009 Earnings Call

January 28, 2010 5:00 pm ET

Executives

Rob Eldridge - Investor Relations

Thomas J. Szkutak - Chief Financial Officer

Analysts

Mark Mahaney – Citi

James Mitchell – Goldman Sachs

Imran Khan – J.P. Morgan

Jeetil Patel – Deutsche Bank

Justin Post – Bank of America-Merrill Lynch

Douglas Anmuth – Barclays Capital

Scott Devitt - Morgan Stanley

Sandeep Aggarwal – Collins Stewart

Benjamin Schachter – Broadpoint AmTech

Youssef Squali – Jefferies & Co.

Colin Sebastien – Lazard Capital Markets

Presentation

Operator

Good day and welcome to the Amazon.com Q4 financial results conference. (Operator Instructions) For today’s opening remarks and introductions, I would like to turn the call over to Mr. Rob Eldridge. Please go ahead, sir.

Rob Eldridge

Hello and welcome to our Q4 2009 financial results conference call. Joining us today is Tom Szkutak, our CFO. He and I will be available for questions after our prepared remarks.

The following discussion or responses to your questions reflect management's views as of today, January 28, 2010 only, and will include forward-looking statements. Actual results may differ materially.

Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K.

As you listen to today's call, we encourage you to have our press release in front of you which includes our financial results, as well as metrics and commentary on the quarter.

During this call we will discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures including reconciliations of these measures with comparable GAAP measures.

Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2008. Now I will turn the call over to Tom.

Thomas J. Szkutak

Thanks Rob. I will begin with comments on our fourth quarter financial results. Trailing 12-month free cash flow grew 114% to $2.92 billion. Return on invested capital was 66% up from 41%. ROIC is trailing TTM free cash flow divided by average total assets minus current liabilities, excluding the current portion of long-term debt over five quarter ends.

The combination of common stock and stock-based awards outstanding was 461 million shares compared with 446 million. Worldwide revenue grew 42% to $9.52 billion or 37% excluding the $354 million favorable impact from year-over-year changes in foreign exchange rates.

We are grateful to our customers who continue to take advantage of our low prices, best selection and free shipping offers including Amazon Prime.

Media revenue increased to $4.68 billion, up 29% or 23% excluding FX rates.

EGM revenue increased to $4.61 billion up 60% or 54% excluding FX rates. Worldwide EGM increased to 48% of worldwide sales, up from 43%.

Worldwide unit growth was 37%. Active customer accounts exceeded 105 million, up 19%. Worldwide active seller accounts were more than 1.9 million, up 24%. Seller units were 28% of total units.

Worldwide gross profit was $1.98 billion, up 47%.

Now I will discuss operating expenses excluding stock-based compensation. Fulfillment, marketing, technology and content and G&A combined was $1.3 billion or 14.5% of sales, down 25 basis points year-over-year. Fulfillment was $733 million or 7.7% of revenue compared with 7.9%.

Tech and content was $297 million or 3.1% of revenue compared with 3.5%.

Marketing was $269 million or 2.8% of revenue, up from 2.5% in the prior year.

Now I will talk about our segment results and consistent with prior periods, we do not allocate to segments or stock based compensation or other operating expense line items.

In the North America segment, revenue grew 36% to $4.96 billion. Zappos, which is included in our results beginning November 1, 2009 contributed approximately $200 million to our fourth quarter revenue.

Media revenue grew 20% to $2.1 billion. EGM revenue grew 54% to $2.66 billion, representing 54% of North America revenues, up from 48%. North America gross profit grew 50% to $1.17 billion and gross margin increased 211 basis points to 23.6%, driven by increases in other revenue, improvements in inventory management including vendor pricing and increases in 3P product sales, partially offset by lower prices for our customers and changes in product mix.

North America segment operating income increased 113% to $278 million, or 5.6% operating margin.

In the international segment, revenue grew 49% to $4.56 billion. Revenue growth was 37%, adjusting for the $344 million year-over-year favorable impact on foreign exchange rates during the quarter.

Media revenue grew 37% to $2.58 billion or 26% excluding FX. And EGM revenue grew 68% to $1.95 billion or 56% excluding FX. EGM now represents 43% of international revenues, up from 38%.

International gross profit grew 42% to $806 million, or grew 31% excluding FX, while gross margin decreased 79 basis points to 17.7%, driven by lower prices for our customers and changes in product mix, partially offset by improvements in inventory management including vendor pricing and increases in 3P product sales.

International segment operating income increased 39% to $319 million, a 7% operating margin. Excluding the favorable impact from foreign exchange rates, international segment operating income increased 25%.

Consolidated segment operating income grew 66% to $597 million or 6.3% of revenue, up 91 basis points year over year. Excluding the $31 million favorable impact from FX rates, CSOI grew 58%.

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