Tom Szkutak, SVP & CFO Credit Suisse Convergence Conference June 10, 2009 This presentation may contain forward-looking statements which are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services and technologies, system interruptions, government regulation and taxation, payments, and fraud. In addition, the current global economic climate amplifies many of these risks. 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 most recent Annual Report on Form 10-K and subsequent filings.
Additional information relating to certain of our financial measures contained herein is available in the appendix to our presentation, our most recent earnings release and at our website at www.amazon.com/ir under ‘Financial Documents’.
2 Agenda
• Our Results
• Our Strategy
3 Financial Focus
• Maximize Profit Dollars, Not Margin
• Optimize Free Cash Flow
• Return On Invested Capital (ROIC)
4 Free Cash Flow -- TTM (1) MM
Up 82% Y/Y
$1,364 $1,431
$788
$477
Long Term Goal – Optimize Free Cash Flow
(1) Free Cash Flow, a non-GAAP financial measure, is GAAP Operating Cash Flow Less Purchases of Fixed Assets. See appendix for a reconciliation of Operating Cash Flow to Free Cash Flow.
5 Free Cash Flow -- TTM
MM $413 $(17)
$686 $(273) $309 $(326) $(145) $5 $1,431 $288 $887
Leverage in Earnings, Working Capital
6 Capital Efficiency -- Operating Cycle -- TTM (1)
23 Days
Day 0 29 34 57
Product Product Customer Supplier Received Shipped Payment Paid
Working Capital is a Source of Cash
(1) As of 03/31/09 – Average Trailing Twelve Month (TTM) Inventory Days, AR Days and AP Days.
7 Shares MM
434 446 435 447
Efficiently Managing Dilution
(1) The Company repurchased 8.2 million shares in 2006, 6.3 million shares in 2007 and 2.2 million shares in 2008. Company issued 7.8 million shares in 2008 related to redemption of its 4.75% Convertible Subordinated Notes. 8 Net Sales -- TTM MM
$19,166 $19,921
$15,955
$6,921
Q1 ‘09 Up 25% Y/Y, Up 27% Excluding Effect of F/X
9 Segments and Net Sales Segments • North America • International
Net Sales Categories • Media • Electronics and Other General Merchandise (EGM) • Other (Amazon Enterprise Solutions, Amazon Web Services, Co-Branded Credit Card, Misc. Marketing & Other)
10 Worldwide Sales Mix -- TTM
11 Net Sales Mix -- TTM
12 International Sales -- TTM MM
• UK, Germany, France, Japan & China
$8,938 $9,240 • Q1 ‘09 TTM International Sales 46%
$7,357 of TTM WW Sales, Unchanged from Q1 ‘08
• We Expect > 50% of Sales Over Time
• Shipments to Over 200 Countries
• Operating Profit up 43% to $692MM
• Operating Margin of 7.5%
Q1 ‘09 Up 26%, Up 30% Excluding Effect of F/X
13 Gross Profit -- TTM
MM
Up 24% Y/Y
Objective: Maximize Dollars, Not Margin
14 Consolidated Segment Operating Income -- TTM MM Up 25% Y/Y
Objective: Maximize Dollars, Not Margin
(1) Consolidated Segment Operating Income (CSOI), a non-GAAP financial measure, excludes Stock-Based Compensation and Other Operating Expense (Income). See appendix for a reconciliation of CSOI to GAAP Operating Income. 15 Balance Sheet
(MM) Q1 ‘04 Q1 ‘09 Assets TTMTTM FreeFree CashCash FlowFlow Cash & Marketable Securities $ 998 $2,730 $1,431$1,431 MMMM Inventories $ 282 $1,266 13x13x TurnsTurns // 6%6% ofof SalesSales A/R, Current Deferred Tax Assets & Other $ 126 $ 779 Total Current Assets $1,406 $4,775 $2,155$2,155 MMMM inin “Operating Assets” Fixed Assets, net $ 217 $ 889 “Operating Assets” Deferred Tax Assets & Other $ 116 $1,316 Total Assets $1,739 $6,980 Liabilities and Stockholders’ Equity A/P & Other Current Liabilities $ 866 $3,410 Long-Term Debt and Other $1,778 $ 652 Stockholders’ Equity (Deficit) $ (905) $2,918 Total Liabilities & Stockholders’ Equity $1,739 $6,980
Our Model is Demonstrating Its Efficiency
16 Return on Invested Capital -- TTM (1)
Long Term Expectation – Triple Digit ROIC
(1) ROIC = TTM Free Cash Flow divided by average Total Assets minus Current Liabilities, excluding Current Portion of our Long Term Debt, over 5 quarter ends.
17 Our Strategy
Earth’s Most Customer Centric Company Start With The Customer And Work Backwards
Three Customer Sets Consumers, Sellers and Developers
18 Our Virtuous Cycle
Lower Cost Lower Structure Prices
Selection & Convenience
Sellers Customer Growth Experience
Traffic
19 Leveraging Our Platform
68% of Units (1) Our Inventory Amazon.com Our Product Detail Pages
32% of Units (1) Sellers Seller Inventory Our Product Detail Pages
Amazon Enterprise Our Technology Solutions Powers Partner Websites
Amazon Web Web Scale Computing Services Simple API’s
(1) Q1 2009
20 Consumers -- Customer Experience Pillars
• Price
• Selection
• Convenience
Innovation Is The Foundation
21 Our Pricing Strategy
Everyday Low Pricing Our objective is not to discount a small number of products for a limited period of time, but to offer low prices everyday and apply them broadly across our entire product range.
Dollars Not Percentages Our pricing strategy does not attempt to maximize margin percentages, but instead seeks to drive maximum value for customers.
22 Global Selection
Product Categories US UK Germany France Japan China Canada Physical Media '95 '98 '98 '00 '00 '04 '02 Electronics '99 '01 '01 '05 '03 '04 '08 Toys '99 '01 '04 '07 '04 '04 Baby '99 '07 '07 '07 '07 '06 Tools & Hardware '99 '04 '04 Home & Garden '00 '04 '04 '07 '03 Apparel & Accessories '02 '08 '08 '07 Sports & Outdoors '03 '07 '06 '05 '06 Jewelry & Watches '03 '07 '07 '07 '07 '06 Health & Personal Care '03 '08 '07 '06 '06 Beauty '04 '08 '08 '08 '06 Shoes '05 '07 '07 '07 Dry Goods '06 Auto Parts & Accessories '06 '08 '09 Digital Media '07 '08 '09 Office Supplies '08 '09 '09 '09 Fabric '08 Motorcycle & ATV Parts & Accessories '08 23 24 Convenience – Amazon Prime
25 Free Membership Launch Annual Offering Shipping Program Fee
Free Two- $ 25 ‘05 $ 79 Day Shipping
£5 ‘07 £48 Free One-Day Delivery
‘07 € 29 Free One-Day € 20 (1) Delivery
Free Expedited (Same/Next 1,500 ‘07 3,900 Day) Shipping
Free Express (Next/Two-Day) € 20 (2) ‘08 €49 Delivery
CAD 39
49
(1) Includes Belgium and the Netherlands. (2) Includes Belgium, Switzerland and Luxembourg (on Media products).
26 Innovation
6” Display 9.7” Display $359 $489 amazon.com/kindle amazon.com/kindleDX
27 28 Selling On Amazon
Over 1.6MM Active Sellers, Up 19% Y/Y
29 Selling On Amazon MM
30 Fulfillment By Amazon (FBA)
Available in US, UK, DE & JP; Beta in FR
31 FBA Benefits
• Orders placed on Amazon.com qualify for Super Saver Shipping and Amazon Prime • US and UK Merchants can also use FBA to fulfill orders placed on other sales channels • Orders placed on Amazon.com benefit from: o Automatic fulfillment o Customer service and customer returns handled by Amazon.com
• Orders placed on Amazon.com can be gift wrapped
In Q1 ’09, Items Shipped on Behalf of Sellers Using FBA increased >300% Y/Y
32 Amazon Enterprise Solutions
33 Amazon Web Services (AWS)
Your Idea Undifferentiated Successful “Heavy Lifting” Product
In-The Cloud Infrastructure Services
34 AWS
• Massive Compute Power o Elastic Compute Cloud (EC2) o Amazon Elastic MapReduce • Massive Storage o Simple Storage Service (S3) o SimpleDB o Simple Queue Service • Content Delivery o Amazon CloudFront • Payments and Billing o Flexible Payments Service (FPS) o Amazon DevPay • On-Demand Workforce o Mechanical Turk
35 Summary
• The Online Model is Advantaged
• We Face Many Challenges and Many Opportunities – We Are:
o Relentlessly Improving Customer Experience – Consumers, Sellers and Developers
o Leveraging Our Platform
o Well Positioned
o Focused on Optimizing LT Free Cash Flow
• Innovation is the Foundation of Everything We Do
36 Appendix
37 Free Cash Flow Reconciliation -- TTM
$MM 2004 2005 2006 2007 2008 Q1 ’08 Q1 ‘09
Operating Cash Flow $566 $733 $702 $1,405 $1,697 $1,039 $1,757
Purchases of Fixed Assets, Including Internal-Use Software and Website Development (89) (204) (216) (224) (333) (251) (326)
Free Cash Flow $477 $529 $486 $1,181 $1,364 $788 $1,431
38 Consolidated Segment Operating Income Reconciliation -- TTM
$MM 2004 2005 2006 2007 2008 Q1 ’08 Q1 ‘09
Consolidated Segment Operating Income $490 $566 $500 $849 $1,093 $928 $1,156
Stock-Based Compensation (58) (87) (101) (185) (275) (205) (288)
Other Operating Income (Expense), Net 8 (47) (10) (9) 24 (15) 19
GAAP Operating Income $440 $432 $389 $655 $842 $708 $887
39