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Amazon.com Announces Financial Results for Third Quarter 1999

Toys, Electronics, and zShops make Amazon.com the one-stop destination for holiday shopping SEATTLE, WA-October 27, 1999-Having added a complete toy store, a complete electronics store, and zShops, Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for the third quarter of 1999. Net sales for the third quarter were $356 million, an increase of 132 percent over net sales of $154 million for the third quarter of 1998.

Amazon.com reported a third-quarter pro forma operating loss of $79 million, compared to a pro forma operating loss of $21 million in the third quarter of 1998. Third-quarter pro forma net loss of $86 million, or $0.26 per share, compared with a pro forma net loss of $24 million, or $0.08 per share, in the third quarter of 1998. On a GAAP basis, reported third-quarter net loss was $197 million, or $0.59 per share, and included $111 million of merger-, acquisition-, investment-related costs, and stock-based compensation charges.

Amazon.com announced that cumulative customer accounts, including Auctions users, increased by 2.4 million during the third quarter to 13.1 million at September 30, 1999, an increase of more than 190 percent from 4.5 million customer accounts at September 30, 1998. Repeat customer orders represented more than 72 percent of orders during the quarter ended September 30, 1999, up from 70 percent in the previous quarter.

The growth in sales and customers accompanied the addition of a complete toy store, a complete electronics store, and the introduction of zShops to Amazon.com. zShops make it possible for any individual or business to sell through Amazon.com, reaching more than 13 million experienced online shoppers. Also, the company's new All Product Search helps shoppers find anything they want to buy on the Net, making Amazon.com the one destination for shoppers to find whatever they are looking for.

"In the third quarter, we announced our new Toys Store, which was immediately recognized by both Forrester Research and MSNBC as the best toy store on the Internet," said Jeff Bezos, Amazon.com founder and CEO. "Toys and our other product expansions round out our rich selection and establish Amazon.com as the one-stop holiday shopping destination."

Regarding Amazon.com's ongoing expansion, the company will be working hard during the holiday season to deliver the great service that Amazon.com customers have come to expect. The company has substantially increased its customer-service capability and increased distribution square footage more than four times compared to the 1998 holiday season, which will help the company better serve customers during this busy time. The company expects its combined focus on growth and customer satisfaction will impact fourth-quarter financial performance, relative to the third quarter, primarily in four ways: first, top-line revenues will increase significantly; second, gross margins will decrease; third, fulfillment expenses as a percentage of sales will slightly increase or be flat; and fourth, marketing expenses will increase.

Recent Highlights

Customer Experience

Heads-down focus on customers helped Amazon.com continue to improve customer experience and grow brand and reach. Recent highlights include Amazon.com rated as:

  • The most widely recognized e-commerce brand in the United States, as rated by online shoppers in a nationwide survey by Opinion Research Corp. Some 117.8 million adults, or 60 percent of the adult population in the U.S., recognize the Amazon.com brand, according to the survey;
  • The 57th most valuable brand worldwide, just above Hilton, Guinness, and Marriott, and just below Pampers, in a June study of global brands by Interbrand Newell and Sorrell;
  • The No 1. Toys store, Books, Music, and Video stores, and General Merchandise store in Forrester Research's recently released PowerRankingsTM;
  • The best online toy store in an MSNBC survey, barely one month after the launch of the Amazon.com Toys Store, beating out longer-established players;
  • The No. 1 place to save money on the Internet, as rated by online shoppers in a nationwide survey by Opinion Research Corp.;
  • The No. 1 online shopping site and the No. 7 Web property during September, according to Media Metrix;
  • The No. 1 Video store, the No.1 Music store, and the No. 1 Bookstore by Gomez Advisors in their most recent scorecards of online stores in these categories;
  • The most-visited music store online, according to Greenfield Online's study of more than 5,000 consumers who have shopped for music online.

Wish List

In early October, Amazon.com introduced Wish List, an advanced and extensive online gift registry for the coming holiday season (http://www.amazon.com/wishlist). Designed to take the stress and hassle out of finding the perfect gift, Wish List was the No. 1 customer request during last year's holiday shopping season. Since its introduction, Wish List has seen faster adoption than almost any other feature Amazon.com has offered its customers.

zShops

In late September, Amazon.com introduced zShops, which enable anyone to offer merchandise for sale at Amazon.com, whether they are micro-manufacturers or major manufacturers, small businesses or global corporations, or specialized retailers. With zShops, anyone can now offer a vast array of popular or hard-to-find items to Amazon.com's more than 13 million customers.

Amazon.com Payments

With the launch of zShops, Amazon.com introduced Amazon.com Payments, which allows individuals to pay for zShops purchases with credit cards using Amazon.com's 1-Click payment feature, thus eliminating what is considered the greatest inconvenience of online transactions between individuals: the delays, hassles, and risks of sending checks and money orders through regular mail.

All Products Search

All Products Search, located in the search box on the upper-left of the Amazon.com Welcome page, helps shoppers find anything for sale on the Net, providing customers with a convenient, easy-to-use guide for finding and discovering exactly what they want among the Net's millions of offerings. This customized and specialized Web search engine is dedicated solely to shopping and makes Amazon.com the place to start online shopping.

Amazon.com Anywhere

In early October, Amazon.com launched Amazon.com Anywhere, an initiative in wireless e-commerce that allows customers to shop and check the status of auction items at Amazon.com securely when they are away from their desktop computers. With the national launch of the new Palm VIITM organizer, Amazon.com's vast selection of merchandise is now accessible to customers anywhere, anytime.

Management Team Expansion

The company continued to build on its management strength, naming Warren C. Jenson as its senior vice president and chief financial officer. Jenson had been executive vice president and CFO at Delta Airlines, the largest domestic airline. Prior to Delta, Jenson was CFO of NBC, a division of General Electric. Jenson came to Amazon.com with a strong record of achievement in financial management, innovative transactions, and Web-based initiatives. Jeffrey A. Wilke was named vice president-general manager of operations. Wilke was formerly vice president and general manager of AlliedSignal's Pharmaceutical Fine Chemicals unit. Wilke was directly responsible for 15 plants/distribution centers in the U.S., Europe, and Asia.

Investments

Amazon.com made a significant minority investment in Della & James, the first company to bring together wedding registries from a broad selection of premier national retailers and local stores, creating the best way to register for and purchase wedding gifts. As part of the strategic relationship with Amazon.com, Della & James' wedding-gift registry will be available through Amazon.com, enabling Amazon.com's 13 million customers to find wedding registries and purchase wedding gifts through Della & James.

 

About Amazon.com, Inc.

Amazon.com (Amazon.com, Inc. and its subsidiaries) is the Internet's No. 1 music, No. 1 video, and No. 1 book retailer. Amazon.com opened its virtual doors on the World Wide Web in July 1995 and today offers Earth's Biggest Selection with online auctions, toys, electronics, and free electronic greeting cards. Amazon.com lists more than 18 million unique items in categories including books, CDs, toys, electronics, videos, DVDs, and computer games. Through Amazon.com zShops, any business or individual can sell virtually anything to Amazon.com's more than 13 million customers, and with Amazon.com Payments, any seller can accept credit-card transactions, avoiding the hassles of offline payments.

Amazon.com seeks to be the world's most customer-centric company, where customers can find and discover anything they may want to buy online. Amazon.com's All Product Search scours the Web to help customers find merchandise that is not available at Amazon.com, Amazon.com Auctions, or Amazon.com zShops, making Amazon.com the shopping destination to find anything.

Amazon.com operates two international Web sites: www.amazon.co.uk in the United Kingdom and www.amazon.de in Germany. Amazon.com also operates PlanetAll (www.planetall.com), a Web-based address book, calendar, and reminder service. It also operates the Internet Movie Database (www.imdb.com), 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. Amazon.com also operates Amazon.com LiveBid Auctions (http://livebid.amazon.com), the leading provider of live-event auctions on the Internet.

Amazon.com has invested in leading Internet retailers that are improving the lives of customers by making shopping easier and more convenient: drugstore.com, an online retail and information source for health, beauty, wellness, personal care and pharmacy, at www.drugstore.com; Pets.com, the online leader for pet products, expert information, and services, at www.pets.com; HomeGrocer.com, the first fully integrated Internet grocery-shopping and home-delivery service, with operations in Seattle, Portland, Oregon, and Southern California, at www.homegrocer.com; and Gear.com, which offers brand-name sporting goods at prices from 20 to 90 percent off retail, at www.gear.com. Amazon.com also has a minority interest in Della & James, the leading online wedding-gift registry, at www.dellajames.com.

This announcement contains forward-looking statements that involve risks and uncertainties that include, among others, Amazon.com's limited operating history, anticipated losses, unpredictability of future revenues, potential fluctuations in quarterly operating results, seasonality, consumer trends, competition, risks of system interruption, management of potential growth, risks related to auction services, and risks of new business areas, international expansion, business combinations, and strategic alliances. 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 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 and June 30, 1999. Amazon.com, Amazon.com Auctions, Amazon.co.uk, Amazon.de, Internet Movie Database, PlanetAll, Earth's Biggest Selection, zShops, Bid-Click, and 1-Click are either registered trademarks or trademarks of Amazon.com, Inc., or its affiliates. All other names mentioned herein may be trademarks of their respective owners.

Note on Financial Presentation

Financial results are prepared in accordance with U.S. generally accepted accounting principles. All of the charges associated with Amazon.com's merger, acquisition, and investment activities have been included in "merger-, acquisition-, and investment-related costs" in the accompanying financial statements in order to enhance their informational value and to present the most comparable classifications in the other line items. Among items included in merger-, acquisition-, and investment-related costs are amortization of goodwill and other purchased intangibles, equity in loss of investees, and certain nonrecurring merger-, acquisition-, and investment-related costs. Pro forma financial results exclude these merger-, acquisition-, and investment-related costs and stock-based compensation.


AMAZON.COM, INC.
Consolidated Statements of Operations

(in thousands, except per share amounts) (unaudited)
                               
                                   Quarter Ended	Nine Months Ended
				    September 30,	  September 30,	
		                   1999	   1998		 1999	1998
									
Net sales                     $355,777   $153,648    $963,797    $356,992 
Cost of sales                  285,300    118,823     760,998     276,680 
Gross profit                    70,477 	   34,825     202,799 	   80,312 

									
Operating expenses:
   Marketing and sales          86,555 	   37,454    233,222 	   84,325 
   Product development          44,608 	   13,227    102,298 	   29,168 
   General and administrative   18,512 	    4,951     44,301 	   10,220 

   Merger, acquisition and
    investment-related costs,
    including amortization
    of intangibles and equity
    in earnings of affiliates   99,481 	   19,486    175,255 	   24,901 
   Stock-based compensation     11,789 	    1,214     16,570 	    1,591 
      Total operating expenses 260,945 	   76,332    571,646 	  150,205 
					
Loss from operations          (190,468)	  (41,507)  (368,847)	  (69,893)

Interest income                 12,699 	   4,755      36,479 	    9,790 
Interest expense               (21,470)   (8,419)    (66,424)     (18,017)
Other income (expense)	         2,159 	      -        2,037 	      -   

  Net interest expense          (6,612)	  (3,664)    (27,908)	   (8,227)

Net loss                     $(197,080)	$(45,171)  $(396,755)	 $(78,120)

Basic and diluted loss 
  per share                    $(0.59)	 $(0.15)     $(1.23)	  $(0.27)

					
Shares used in computation of 
 basic and diluted loss 
 per share                     332,488 	 301,405     323,064 	  292,206 

									
Pro Forma Results Excluding Merger and Acquisition, Investment and 
Stock-Based Compensation Costs (see Note 2 below)
									
Pro forma loss from operations, 
 excluding merger and 
 acquisition, investment and 
 stock-based compensation 
 costs                        $(79,198)	$(20,807)  $(177,022)	 $(43,401)

Pro forma net loss, excluding 
 merger and acquisition, 
 investment and stock-based 
 compensation costs           $(85,810)	$(24,471)  $(204,930)	 $(51,628)

Pro forma basic and diluted 
 loss per share, excluding 
 merger and acquisition, 
 investment and stock-based 
 compensation costs            $(0.26)	 $(0.08)     $(0.63)	  $(0.18)

Shares used in computation of 
 pro forma basic and diluted 
 loss per share                332,488 	 301,405     323,064 	  292,206 

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 quarter and 9-month periods ended September 30, 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 Amazon.com, excluding charges of $111.3 million and $20.7 million for the 3-month periods ended September 30, 1999 and 1998, and $191.8 million and $26.5 million for the 9-month periods ended September 30, 1999 and 1998, respectively, related to stock-based compensation and arising from Amazon.com's merger, acquisition and investment activities. Among items included in merger and acquisition related costs are amortization of goodwill and other purchased intangibles, equity in loss of investees, and certain non-recurring merger and acquisition related costs.

AMAZON.COM, INC.
Consolidated Balance Sheets

(in thousands, except per share data)
									
                                      SEPTEMBER 30,	DECEMBER 31,
					 1999		   1998
				     (Unaudited)		
	
					
ASSETS					
Current assets:					
  Cash                                  $43,149 	   $25,561 
  Marketable securities                 862,536            347,884 
  Inventories                           118,793             29,501 

  Prepaid expenses and other             55,590 	    21,308 

    Total current assets              1,080,068 	   424,254 

					
Fixed assets, net                       221,243 	    29,791 
Other investments                       196,317 	     7,740 
Intangibles and other, net              705,932            179,263
Deferred charges                         36,239 	     7,412 
  Total assets                       $2,239,799 	  $648,460 
					
LIABILITIES AND STOCKHOLDERS' EQUITY	
Current liabilities:
  Accounts payable                     $236,711 	  $113,273 
  Accrued advertising                    24,567 	    13,071 
  Interest payable                       10,045 	        10 
  Other liabilities and 
    accrued expenses                     73,572 	    34,413 
  Current portion of long-term debt
   and other                             12,776 	       808 
     Total current liabilities          357,671 	   161,575 
					
Long-term debt and other              1,462,203 	   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 -- 3,000,000	
    Issued and outstanding shares
      -- 339,235 and 318,534	
      shares at September 30, 1999 and 
      December 31, 1998, respectively    3,393 	            3,186 
  Additional paid-in capital         1,027,655 		   298,537 
  Note receivable from officer for
    common stock                        (1,171)		    (1,099)
  Stock-based compensation             (32,180)		    (1,625)
  Accumulated other comprehensive 
    income                             (18,957)		     1,806 
  Accumulated deficit                 (558,815)		  (162,060)
    Total stockholders' equity         419,925 		   138,745 
      Total liabilities and 
        stockholders' equity        $2,239,799 		  $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.

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