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Amazon Bundles Up for Assault on 'Pro Forma' Profitability

7 Jun, 2001 By: Hive News

Amazon.com said Tuesady it is still on track to deliver proforma profitability in the fourth quarter of this year and expects to be profitable on the same basis for all of 2002.

While it sounds like a step in the right direction, pro forma profitability excludes a variety of expenses, including charges associatedwith acquisitions and interest on Amazon's more than $2 billion debt.

The company said that pro forma operating expenses as a percentage of sales fell from 40% in the first quarter of 2000 to 33% in the first quarter of 2001. Gross margins and inventory margins are also improving, the company said.

Amazon also said Tuesday that it plans to begin selling PCs via the Internet during the second half of 2001.

Amazon is attempting to diversify its product mix and sell more than books, movies and videos. The company said book, movie and video sales dropped from 91% of total sales in the first quarter of 2000 to 58% of sales in the first quarter of 2001.

Amazon says that the services business has also grown from virtually nothing in the first quarter of 1999 to 16% of its gross profits in the first quarter of 2001.

Amazon also said revenues from services, including the company's deals with brick-and-mortar retailers Toys 'R' Us and Borders, were on track to reach $175 million to $200 million this year.

Additionally, Amazon plans to open a third Toys 'R' Us store, Imaginarium, before the holiday season.

David Risher, Amazon's senior v.p. of marketing and merchandising, told analysts that the company planned to begin testing a programcalled "Amazon Extra." Amazon Extra will offer consumers discounts for purchasing selected bundles of related products. Consumers interested in purchasing a DVD of Gladiator will be given the option of also purchasing Spartacus and saving an additional $5 over the single purchase price of both DVDs. Risher said that Amazon will be able to bundle products on a "massive scale."

According to Risher, Amazon hopes the new program will increase average order size. He added that vendors have contacted Amazon and asked to partner with the Internet giant on its bundling initiative.

Amazon also said it will start an institutional sales program in the second half of this year that will allow consumers to make purchases on credit. Institutions and businesses will be able to set up accounts with multiple buyers and will be able to access order histories by purchaser.

Risher said that Amazon anticipates its institutional sales program will bring in $150 million over the next two years.

Professional customers, including libraries and businesses, account for roughly 42% of the U.S. book market, according to Risher. However, Amazon has been missing out on these sales because the company does not allow consumers to use purchase orders.

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