AmazonCaseFinal

Topics: Stock, Corporate finance, Stock market Pages: 3 (1382 words) Published: April 6, 2015
Farah Amir
Katelyn Dearing
Sarah Gleaton
Eamonn Green
Robert McNeil
Yiyi Zhu

March 30, 1997

Jeffery Bezos
Joy Covey
Amazon
410 Terry Ave. North
Seattle, WA
98109

Dear Mr. Bezos and Ms. Covey:

We are pleased to inform you that we have completed the requested consultation on Amazon’s upcoming IPO.

Selection of Books as Company Focus

We believe that books was the optimal selection from Mr. Bezos’ original list of 20 retail categories in which he outlineds the types of products consumers will most likely want to purchase online. The sheer number of titles in existence is staggering. While even the largest superstores could stock only a few hundred thousand books, a “virtual” bookstore could offer millions of titles without carrying the extremely large number of fixed assets. This presents a clear advantage over other bookstores currently in the market. Books also lend themselves to online sales because a given published book is standard all over the world, meaning that there is little advantage to physically being in the presence of the book when making a purchase. When Amazon started doing business, there were only two main book distributors (Baker and Taylor and Ingram) in the entire U.S. making procurement a relatively easy process.

Valuation of Amazon

There are certain aspects of Amazon’s business model that we must outline before getting into a detailed valuation of the firm. Amazon’s service is expected to be superior to that of its’ competitors because customers will have access to a broader selection of products at lower prices from the convenience of their homes. Amazon will also have economic advantages over brick and mortar (B&M)land-based book retailers as soon as it reaches a certain scale. These advantages include but are not limited to lower occupancy cost (< 4% compared to that of B&Mland-based retailers which is 12%), sales per operating employee three times that of B&Mland-based retailers, faster inventory...
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