Presented by:

Amy Kakuk,

Jessica Bourgoin,

and Beth Theriault

April 14, 2005

Outline

History Where we Stand Today Vision Statement Mission Statements

– Actual– Proposed

Business Segments External Audit

– Opportunities– Threats

EFE CPM Internal Audit

– Strengths– Weaknesses

IFE Matrix Analysis

– SWOT Matrix– Space Matrix– Grand Strategy Matrix– BCG Matrix– IE Matrix

Matrix and SWOT Summary Financial Ratios QSPM Strategy Recommendations EPS/EBIT Analysis Future Goals/Objectives Amazon. COM in the News

•Amazon was incorporated in the state of Washington on July 5, 1994.

•Before the company was renamed Amazon it was called Cadabra, Inc.

•The company was developed by Jeff Bezos and two associates in a garage converted into a shop.

•The company began selling to the public in July 1995.

•On May 15, 1997 the company went public with an opening price of $18 per share.

•In 1999, the company bought 46% of drugstore.com and launched it’s own auction site to challenge e-bay.

•In 2002, Virgin Entertainment Group and Amazon.com relaunched www.virginmega.com as a co-branded Web site.

•Also in 2002, Amazon.com launched Amazon.ca, bringing Canadians the selection, convenience, and the value of the Amazon shopping experience.

A little about us…

Headquarters is located in Seattle, Washington.

Amazon’s common stock is publicly traded on the NASDAQ under AMZN.

Our web-site address is amazon.com

Where we stand today..

Amazon.com, Inc. is an internet-based company that offers books, music, videos, DVDs, electronics, software, toys, video games, electronic greeting cards, home improvements, online auctions, and a virtual mall called z-shops. Amazon has sites in France, Japan, Germany and the United Kingdom. Domestically, Amazon has experienced tremendous growth since its inception. However, that growth has not come without a cost. As the world economy worsens, Amazon faces pressure from stockholders as well as the entire financial community to realize a profit. Amazon has created a platform and customer base that many companies envy, but can they stay in business long enough to reach profitability.

Price and Volume

Information from Amazon.com

Recent Price $34.60

Trade Date 04/11/05

52-Week High $54.70

52-Week Low $32.82

Beta (5-Year) 2.37

Stock Chart (May 2003 – March

2005)

Chart from Amazon.com

Vision Statement (proposed)

To be the largest mass online merchandiser on earth.

Mission StatementActual

The company motto: “Work Hard, Have Fun, and Make History.”

The company’s six core values: customer obsession, ownership, bias for action, frugality, high hiring bar, and innovation.

Mission Statement Proposed

Our first responsibility is to service our worldwide (1) online customers. (2) We pledge to make every effort to improve the level of customer service throughout the e-commerce industry by using up-to-date hardware and software (3) and by listening to our customers. We will offer customers increased product selections (4) to fulfill their online shopping desires. We strive to be the most used e-commerce portal on the World Wide Web (6), while conducting operations in a highly ethical (5) manner to ensure the long-term profitability and growth for shareholders.(7) We pledge to contribute to the economic strength of society and to function as an exceptional corporate citizen in all countries that we do business. (8) We vow to recruit, develop, motivate, reward and retain personnel of exceptional ability, character, and dedication. In return, we will provide them good working conditions, superior leadership, short and long term compensation, and an opportunity for individual growth and employment security.(9)

1. Market2. Customer3. Technology4. Product or services5. Philosophy6. Self Concept7. Concern for survival,

growth, and profitability

8. Concern for public image

9. Concern for employees

Business Segments

•The North America segment consists of amounts earned from retail sales through www.amazon.com and www.amazon.ca, Syndicated Stores and mail-order catalogs, Merchant.com, marketing, and promotional agreements. This segment has seen a growth in net sales from $2.382 billion in 2000 to $2.74 billion in 2002

•The International Segment consists of amounts earned from retail sales through www.amazon.co.uk, www.amazon.de, www.amazon.fr, and www.amazon.co.jp, Syndicated Stores, and international focused marketing and promotional agreements. This segment has seen a growth in net sales from $381million in 2000 to $1.17billion in 2002

External Audit

Threats• 1. Taxes imposed for EU customers• 2. Unemployment level highest sine 1994• 3. Currency fluctuation• 4. Failure to permanently ban Internet taxes• 5. Aggressive competition• 6. Identity theft• 7. Terrorist attack, war• 8. State of the economy, high inflation• 9. Volatile stock market• 10. High interest rate• 11. Ease of entry into market

Opportunities• 1. Pressure to permanently ban the Internet Tax• 2. State of the economy is improving• 3. Customer spending increased• 4. Currency fluctuation (weak dollar)• 5. Increased number of Internet users in the US• 6. Broadband access technology• 7. Increased number of Internet users worldwide• 8. Online sales predicted to increase• 9. Low interest rate• 10. One European currency - Euro

Key External Factors Weight Rating Weighted Score

Opportunities

1. Pressure to permanently ban the Internet Tax 0.07 2 0.14

2. State of the economy is improving 0.08 3 0.24

3. Customer spending increased 0.05 3 0.15

4. Currency fluctuation (weak dollar) 0.05 3 0.15

5. Increased number of Internet users in the US 0.03 3 0.09

6. Broadband access technology 0.03 4 0.12

7. Increased number of Internet users worldwide 0.03 3 0.09

8. Online sales predicted to increase 0.05 4 0.20

9. Low interest rate 0.03 3 0.09

10. One European currency - Euro 0.03 3 0.09

Threats

1. Taxes imposed for EU customers 0.05 3 0.15

2. Unemployment level highest sine 1994 0.04 3 0.12

3. Currency fluctuation 0.04 3 0.12

4. Failure to permanently ban Internet taxes 0.06 2 0.12

5. Aggressive competition 0.07 4 0.28

6. Identity theft 0.05 4 0.20

7. Terrorist attack, war 0.02 2 0.04

8. State of the economy, high inflation 0.07 2 0.14

9. Volatile stock market 0.04 2 0.08

10. High interest rate 0.04 2 0.08

11. Ease of entry into market 0.01 2 0.02

Total 1.00 2.84

Competitive Profile Matrix

Amazon. COM Barnes & Nobles eBay

Critical Success Factors

Weight Rating WeightedScore

Rating WeightedScore

Rating WeightedScore

Market SharePriceFinancial PositionProduct QualityConsumer LoyaltyGlobal expansionAdvertisingSoftware technologyManagemente-commerce expertise

0.050.100.150.100.100.150.150.050.100.05

4423444444

0.200.400.300.300.400.600.600.200.400.20

3343333343

0.150.300.600.300.300.450.450.150.400.15

4433444344

0.200.400.450.300.400.600.600.150.400.20

Total 1.00 3.60 3.25 3.70

Weaknesses

1. Accumulated deficit of $3 billion

2. Operating losses

3. Interest payments on debt issued

4. High inventory risk - seasonality

5. Small number of vendors (suppliers)

6. Breach of customer confidential information

Internal Audit

Strengths

1. Strong management team

2. Strong customer service support

3. Up-to-date technology and software

4. High brand name recognition

5. Corporate culture

6. Distribution centers

7. Strategic alliances

8. Increased revenue from international segment

9. High inventory turnover

Key Internal Factors Weight Rating WeightedScore

Strengths

1. Strong management team 0.10 4 0.40

2. Strong customer service support 0.07 4 0.28

3. Up-to-date technology and software 0.08 4 0.32

4. High brand name recognition 0.10 4 0.40

5. Corporate culture 0.07 3 0.21

6. Distribution centers 0.05 3 0.15

7. Strategic alliances 0.07 3 0.21

8. Increased revenue from international segment 0.03 3 0.09

9. High inventory turnover 0.03 3 0.09

Weaknesses

1. Accumulated deficit of $3 billion 0.10 1 0.10

2. Operating losses 0.05 1 0.05

3. Interest payments on debt issued 0.05 2 0.10

4. High inventory risk - seasonality 0.05 2 0.10

5. Small number of vendors (suppliers) 0.05 2 0.10

6. Breach of customer confidential information 0.10 2 0.20

TOTAL 1.00 2.80

IFE

S-O Strategies

Market penetration – increase marketing expenditures to 5% of net sales (O3, O5, O9, S4, S2, S9)Lobby to permanently ban Internet Tax (O1, O7, S1, S4)

S-T Strategies

Lobby to permanently ban Internet Tax ( T4, S1)Horizontal Diversification – create a Web search engine (T5, T11, S1, S2, S4).

W-O Strategies

Concentric Diversification – add new services/products to level seasonality- food & beverage (O1, O2, O5, O9, W4, W5)

W-T Strategies

Lower prices (T4, T5, T11, W4)

SWOT MatrixSWOT Matrix

FS

CA IS

ES

AggressiveAggressiveConservativeConservative

DefensiveDefensive CompetitiveCompetitive

Space Matrix

Quadrant II Quadrant I

Quadrant IV

Grand Strategy Matrix

Weak Competitive Position

Strong Competitive

Position

Slow Market Growth

Rapid Market Growth

1. Market Development

2. Market Penetration

3. Product Development

4. Forward/Backward/Horizontal Integration

5. Concentric Diversification

BCG Matrix

High

+20

Med

0

Stars

Domestic

Question Marks

International

Low-20

Cash Cows Dogs

High 1.0 Medium .50 Low 0.0

Relative Market Share Position

IndustrySalesGrowthRate

1.0 to 1.99

IXVIIIVIILow

2.0 to 2.99

The EFETotal

Weighted Score

VIVIVMedium

DomesticInternational3.0 to 3.99

IIIIIIHigh

1.0 to 1.992.0 to 2.993.0 to 4.0

WeakAverageStrong

The IFE Total Weighted Score

Internal-External (IE) Matrix

Hold and Maintain

Matrix Analysis and SWOT Summary

Alternative Strategies IE SPACE GRAND COUNT

Forward Integration * * * 3

Backward Integration * * * 3

Horizontal Integration * * * 3

Market Penetration * * * 3

Market Development * * * 3

Product Development * * * 3

Concentric Diversification * * 2

Conglomerate Diversification * 1

Horizontal Diversification * 1

Joint Venture * 1

Retrenchment

Divestiture

Liquidation

Financial Ratio Analysis (March 2004)

Company Industry Sector S&P 500

Valuation Ratios

P/E Ratio (TTM) 559.59 41.01 28.90 24.01

P/E High - Last 5 Yrs NA 45.19 48.47 45.41

P/E Low - Last 5 Yrs NA 15.69 16.09 16.26

Beta 2.23 1.30 0.96 1.00

Price to Sales (TTM) 3.16 5.40 2.80 3.33

Price to Cash Flow (TTM) 145.89 29.19 17.03 17.32

Price to Free Cash Flow (TTM)

48.12 43.57 33.11 28.97

% Owned Institutions 58.35 68.16 50.48 64.19

Dividends Amazon Sector Industry S&P 500

Dividend Yield N/A 1.17 2.14 2.04

Dividend Yield - 5 Yr Avg 0.00 0.22 1.43 1.48

Dividend 5 Yr Growth Rate NM 7.00 -0.89 6.48

Payout Ratio (TTM) 0.00 2.12 15.54 26.78

Growth Rates %

Sales (MRQ) vs Qtr 1 Yr Ago 36.20 24.97 14.39 13.40

Sales - 5 Yr Growth Rate 53.89 35.47 17.25 9.30

EPS (MRQ) vs Qtr 1 Yr Ago 2357.14 27.30 15.43 28.69

EPS - 5 Yr Growth Rate NM 43.79 15.23 12.15

Capital Spending - 5 Yr Growth

Rate10.16 15.62 2.61 4.06

Financial Ratio Analysis (cont.)

Financial Strength Amazon Sector Industry

S&P 500

Quick Ratio (MRQ) 1.11 1.22 0.93 1.26

Current Ratio (MRQ) 1.45 2.19 1.47 1.76

LT Debt to Equity (MRQ) N/A 0.66 0.74 0.68

Total Debt to Equity (MRQ)

N/A 0.73 0.82 0.85

Interest Coverage (TTM) 2.08 16.81 7.84 11.86

Profitability Ratios %

Gross Margin (TTM) 23.88 42.23 42.84 47.32

Gross Margin - 5 Yr Avg 23.23 41.08 42.06 47.01

EBITD Margin (TTM) 5.19 13.65 22.32 20.79

Financial Ratio Analysis (cont.)

Amazon Industry Sector S&P 500

Operating Margin - 5 Yr Avg -14.93 6.75 11.21 18.35

Pre-Tax Margin (TTM) 0.68 11.64 10.37 17.27

Pre-Tax Margin - 5 Yr Avg -19.84 7.27 11.77 17.54

Net Profit Margin (TTM) 0.68 7.76 7.54 13.12

Net Profit Margin - 5 Yr Avg -19.84 3.74 7.62 11.59

Management Effectiveness %

Return on Assets (TTM) 1.94 8.29 5.91 6.40

Return on Assets - 5 Yr Avg -24.73 4.45 5.49 6.79

Return on Investment (TTM) 3.89 11.53 7.98 9.97

Return on Investment - 5 Yr Avg -40.89 5.83 7.59 10.93

Return on Equity (TTM) N/A 14.04 13.51 18.71

Return on Equity - 5 Yr Avg N/A 13.84 13.18 19.22

Financial Ratio Analysis (cont.)

Efficiency Amazon Sector Industry S&P 500

Revenue/Employee (TTM) 674,833393,35

1479,338 622,866

Net Income/Employee (TTM) 4,579 29,688 90,606 81,707

Receivable Turnover (TTM) N/A 26.71 17.23 9.76

Inventory Turnover (TTM) 18.39 6.48 17.53 10.46

Asset Turnover (TTM 2.86 1.91 1.17 0.92

Financial Ratio Analysis (cont.)

Financial Information

Amazon.com had an increase in revenue of 2141.3 million from 2001 to 2003

In 2001 and 2003, Amazon.com’s net income was in the negative, but in 2003 they had a positive net income of $35.3 million

They have experienced a decrease in their total debt from 2001 to 2003 of $221.4 million

Key External Factors Weight

Create aweb

Searchengine

Start Gourmet

foodwholesaler

Opportunities AS TAS AS TAS

1. Pressure to permanently ban the Internet Tax 0.07 1 0.07 1 0.07

2. State of the economy is improving 0.08 1 0.08 3 0.24

3. Customer spending increased 0.05 1 0.05 3 0.15

5. Increased number of Internet users in the US 0.03 3 0.09 4 0.12

6. Broadband access technology 0.03 4 0.12 3 0.09

8. Increased number of Internet users worldwide 0.03 3 0.09 4 0.12

9. Online sales predicted to increase 0.05 1 0.05 3 0.15

10. Low interest rate 0.03 1 0.03 2 0.06

Threats

2. Unemployment level highest since 1994 0.04 1 0.04 2 0.08

4. Failure to permanently ban Internet taxes 0.06 1 0.06 1 0.06

5. Aggressive competition 0.07 4 0.28 3 0.21

6. Identity theft 0.05 1 0.05 1 0.05

8. State of the economy, high inflation 0.07 1 0.07 2 0.14

11. Ease of entry into market 0.01 3 0.03 4 0.04

SUBTOTAL 1.11 1.58

Key Internal Factors Weight

Create aweb search

engine

Start gourmetfood

wholesaler

Strengths AS TAS AS TAS

1. Strong management team 0.10 2 0.20 4 0.40

2. Strong customer service support 0.07 1 0.07 4 0.28

3. Up-to-date technology and software 0.08 3 0.24 4 0.32

4. High brand name recognition 0.10 1 0.10 4 0.40

5. Corporate culture 0.07 1 0.07 3 0.21

Weaknesses

1. Accumulated deficit of $3 billion 0.10 1 0.10 2 0.20

2. Operating losses 0.05 2 0.10 1 0.05

SUBTOTAL 1.00 0.88 1.86

Total Attractiveness Score 1.81 3.26

Strategy Recommendations and Implementation

Market penetration – increase market share for present products in present markets through greater marketing efforts.

Increase marketing expenses to 3% of net sales for the next three years compared to 2% in 2002.

Reasons – aggressive advertising from new competitors such as buy. COM, overstock. COM.

Target the marketing campaign. Costs associated with this strategy – increase in fulfillment costs and

marketing costs. Fulfillment costs are 10% of net sales. For the period 2003 – 2005, these costs amount to $2,084,000,000. The 1% increase in marketing costs for the period 2003 -2005 amounts to $208,440,000.

Strategy Recommendations and Implementation

Concentric diversification – add new but related products/services. Example – start an online gourmet food and beverage store using a

wholesaler such as Seattle Chocolate Co. Reasons – take advantage of brand name recognition and customer loyalty. Because this strategy does not involve any inventory build-up, costs

associated are relatively low.

Horizontal diversification – add new, unrelated products/services for present customers.

Example – develop a search engine to control the path to online merchants. Risk – similar services are already available: Yahoo, Google.

EPS/EBIT Analysis

Recession Normal Boom Recession Normal Boom

EBIT 500,000,000 1,000,000,000 1,500,000,000 500,000,000 1,000,000,000 1,500,000,000Interest 0 0 0 50,000,000 50,000,000 50,000,000EBT 500,000,000 1,000,000,000 1,500,000,000 450,000,000 950,000,000 1,450,000,000Taxes 0 0 0 0 0 0EAT 500,000,000 1,000,000,000 1,500,000,000 450,000,000 950,000,000 1,450,000,000# Shares 440,631,579 440,631,579 440,631,579 388,000,000 388,000,000 388,000,000EPS 1.13 2.27 3.40 1.16 2.45 3.74

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom

EBIT 500,000,000 1,000,000,000 1,500,000,000 500,000,000 1,000,000,000 1,500,000,000Interest 15,000,000 15,000,000 15,000,000 35,000,000 35,000,000 35,000,000EBT 485,000,000 985,000,000 1,485,000,000 465,000,000 965,000,000 1,465,000,000Taxes 0 0 0 0 0 0EAT 485,000,000 985,000,000 1,485,000,000 465,000,000 965,000,000 1,465,000,000# Shares 424,842,105 424,842,105 424,842,105 403,789,474 403,789,474 403,789,474EPS 1.14 2.32 3.50 1.15 2.39 3.63

70 Percent Debt - 30 Percent Stock70 Percent Stock - 30 Percent Debt

Amount Needed 1,000MInterest 5%Tax Rate 0%Share Price $19Shares Outstanding 388M

Net Worth Analysis

1. Stockholders’ Equity = $(1,355,900,000)

2. Net Income (12/31/2002) * 5 = $149,100,000 * 5 = $(745,500,000)

3. Share price / EPS * Net Income = $19/$(0.39)*$(149,100,000) = $(7,263,846,154)

4. Number of shares outstanding * Share price = 388,000,000*$19 = $7,372,000,000

Goals and Objectives

For the next 3-4 years, Amazon is hoping to have started their online gourmet food and beverage store.

Also, Amazon want to increase their marketing expenses from 2% of net sales to 3%. This will give them more advertising and brand recognition.

Amazon has recently launched their search engine called A9. Now they need to spend the next three year trying to get the name known and get in the competition with yahoo and google.

2005 Press Releases

Apr.04 Amazon.com Acquires BookSurge LLC

Mar.11 Amazon.com to Webcast Investor Conference Presentation

Feb.15 Amazon.com Announces New Award for Innovative Nonprofit Organizations

Feb.08 Amazon.com Jewelry Sales Up More Than 120 Percent

Feb.02 Amazon.com Announces Record Free Cash Flow Fueled by Lower Prices and Free Shipping; Introduces New Express Shipping Program -- Amazon Prime

Jan.21 Amazon Web Services Gives Software Developers First-Ever Access to Data and Technology from

Amazon.ca and Amazon.frJan.17 Amazon Services and Diane Von Furstenberg Studio Announce E-Commerce Alliance for Online Apparel Offering

Press releases form Amazon.com