Tom Szkutak, CFO Goldman Sachs Internet Conference May 27, 2004 Amazon.com This presentation may contain forward-looking statements, including statements regarding expectations of sales, gross margin, productivity, leverage, operating results, consolidated segment operating results, capital investment, return on capital, free cash flow and other financial statement or balance sheet items or ratios, all of which are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, among others, the potential changes in general economic conditions, Amazon.com’s risks related to potential future losses, significant amount of indebtedness, competition, commercial agreements and strategic alliances, foreign exchange rates, seasonality, potential fluctuations in operating results and rate of growth, management of potential growth, system interruption, international expansion, consumer trends, inventory, fulfillment center optimization, limited operating history, government regulation and taxation, fraud, and new business areas. 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, 2003, and all subsequent filings. Additional information relating to certain of our financial measures contained herein is available in our most recent press release and at our website at www.amazon.com/ir under ‘Financial Documents and Annual Reports’. 2 Amazon.com Agenda Our Strategy Our Model Our Results 3 Our Strategy Vision Earth’s Biggest Selection Build a place where people can find and discover anything they want to buy online Earth’s Most Customer-Centric Company Start with the customer and work backwards 4 Our Strategy Our Virtuous Cycle Source: Jeff Bezos, September 2001 Over 41MM Active Customer Accounts 5 Our Strategy Customer Experience Pillars Price Selection Convenience I N N O V A T I O N 6 Selection Leveraging the Platform Amazon.com Our Inventory as Seller Our Product Detail Pages Marketplace / 3rd Party Inventory Merchants@ Our Product Detail Pages Over 700,000 Active Seller Accounts* 7 *Those with an order from one of our customers in the last 12 months Selection Home and Garden in Germany 8 Selection Third Party -- Marketplace 9 Selection Third Party -- Marketplace 10 Selection Third Party -- Merchants @ Amazon.com 11 Selection Beauty -- Merchants @ Amazon.com 12 Selection Jewelry & Watches 13 Selection Jewelry & Watches 14 Selection Jewelry & Watches 15 Selection Gourmet Food 16 Selection Health & Personal Care 17 Our Strategy Leveraging our Platform Amazon.com Our Inventory as Seller Our Product Detail Pages } 77% of Units* Syndicated Our Technology & Inventory Stores Co-branded Partner Websites 23% of Units* Marketplace / 3rd Party Inventory Merchants@ Our Product Detail Pages Merchant.com Our Technology Powers Partner Websites 18 *Q1 2004 Our Strategy Syndicated Stores Others: CDNow, HMV, Virgin, WaldenBooks, Waterstones 19 Our Strategy Merchant.com 20 Global Selection Books ‘95 ‘98 ‘98 ‘00 ‘00 ‘02 Music/DVD/Video ‘98 ‘99 ‘99 ‘01 ‘00 ‘02 Video Games & Software ‘99 ‘00 ‘00 ‘01 ‘01 ‘03 Electronics ‘99 ‘01 ‘01 ‘03 Toys & Baby ‘99 ‘01 Tools & Hardware ‘99 ‘04 ‘04 Kitchen & Housewares ‘00 ‘04 ‘04 ‘03 Office Products ‘02 Apparel & Accessories ‘02 Sports & Outdoors ‘03 Gourmet Food ‘03 Jewelry & Watches ‘03 Health & Personal Care ‘03 Beauty ‘04 Third Party Sellers Marketplace ‘00 ‘02 ‘02 ‘02 ‘03 ‘03 Merchants@ ‘02 21 Expect More Category and Country Expansion Over Time Global Brand Interbrand Top 100 1. Coca-Cola 20. Sony 36. Gap 43. Ikea 65. Yahoo 70. Tiffany 74. Amazon.com -- “Amazon’s relentless focus on making online buying easier...improved its standing among consumers.” 93. Starbucks 98. Wall Street Journal 22 Source: Business Week - August, 2003 -- Interbrand’s Annual Survey of the World’s Most Valuable Brands Convenience Search Inside the Book 23 Convenience Search Inside the Book Searchable Pages From Hundreds of Publishers 24 Convenience Customer Self Service 25 Convenience Customer Self Service If You Have to Contact Us -- It’s Not Convenient 26 Convenience A9.com Improving E-Commerce Search 27 Convenience Guaranteed Accelerated Delivery 28 Price Jewelry 29 Price Books 30 Price Free Shipping U.S. U.K. JP FR La livraison gratuite à partir de 20 euros d'achats ! DE CA 31 Customer Satisfaction “Amazon.com continues its lead, with a remarkable score of 88... Although customers consider service quality to be exceedingly high, an increasing part of their satisfaction appears to result from lower pricing.” Highest Ever Service Industry Score -- Online or Offline 32 Source: American Customer Satisfaction Index – February, 2004. University of Michigan, American Society for Quality, CFI Group. Our Model Capital Efficiency -- Centralized Distribution Physical Store Amazon.com Headquarters Warehouses Stores Lower Invested Capital = Higher Return 33 Our Model Balance Sheet -- March 31, 2004 Assets ($MM) Cash & Marketable Securities $ 998 TTM Free Cash Flow $344 Inventories 282 19 Turns / 4% of Sales Accounts Receivable, net & Other 126 $499 in “operating assets” Total Current Assets 1,406 Fixed Assets, net 217 Fixed Assets Down 5% Y/Y Other Long Term Assets 116 ROIC 38% up From 15% Total Assets $1,739 Liabilities and Stockholders’ Deficit Principal Due 2009 / 2010 Current Liabilities $866 Long-Term Debt 1,778 $150 Partial Call Feb-04 Total Stockholders’ Deficit (905) Up to an Additional $500 Total Liabilities & $1,739 Over Time Stockholders’ Deficit Long Term Expectation -- Triple Digit Returns on Invested Capital 34 Our Model Capital Efficiency -- Negative Operating Cycle* 21 Days Day 0 20 23 44 Product Product Customer Supplier Received Shipped Payment Paid Working Capital is a Source of Cash 35 * As of 3/31/04 -- TTM Average Inventory Turns, Approximate AR Days and Ending AP Days Our Model Inventory Velocity Hypothetical Example -- Digital Camera Physical Store Amazon.com Average Selling Price $300 $300 Turns -- TTM 7.5 18.7 Obsolescence Hypothetical Value -- One Year Later $210 $210 Obsolescence Loss Per Week (30% per Year) $1.7 $1.7 Average Weeks in Inventory 7.0 2.8 Obsolescence Cost Per Unit $11.9 $4.8 As a % of Sales 4.0% 1.6% Inventory Velocity Translates to Cash and Margin Benefit 36 Our Model Inventory Velocity -- Trailing Twelve Months (TTM) Inventory Turns Gross Inventory 20 Margin Turns Amazon.com Amazon.com 24% 19 Costco Barnes & Noble 28% 3 11 Costco 12% 11 Wal-Mart Home Best Buy Depot Home Depot 32% 5 Barnes & Noble Best Buy 25% 7 2 10% 22.5% 35% Wal-Mart 23% 7 Gross Margin Best of Both Worlds -- High Turns, High Margins 37 Source: MultexIR Stock Screener (Most Recent Available Data as of May 20, 2004) -- Inventory Turns = TTM COGS / TTM Average Inventory Our Model Technology Performance / $ Internet Penetration / Users Optical Fiber -- Doubles 9 months (bits per second) Web Services Data Storage -- Doubles 12 months Bandwidth (bits per square inch) Wireless Silicon (Moore’s Law) -- Doubles 18 Months (number of transistors) Instant On 0 Years 5 Third Parties Source: Vinod Khosla, Kleiner Perkins Caufield & Byers, 2000 Technology is our Ally -- It Will Only Get Better 38 Our Results Free Cash Flow* -- TTM ($MM) $44 $24 $138 ($94) $73 ($49) ($37) $344 $313 Q1 04 Change in Change in Depreciation CapEx Net Change in Other Q1 04 Pro Forma Accounts Inventories & FCF Net Income Payable Amortization Leverage in Earnings, Working Capital and Fixed Assets 39 * Operating Cash Flow Less Capital Expenditures -- see appendix Our Results Free Cash Flow* -- TTM ($MM) $350 $344 Up 180% $175 $123 $0 Q1 03 Q1 04 Long Term Goal -- Optimize Free Cash Flow per Share 40 * Operating Cash Flow Less Capital Expenditures (including capitalized software & development) -- see appendix Our Results Share Count (MM) 440 432 432 220 392 405 0 Q1 03 Q1 04 Shares Outstanding Stock Awards Outstanding Efficiently Managing Dilution -- Flat Y/Y 41 Our Results Net Sales -- TTM ($MM) $6,000 Up 37% $5,710 $4,169 $3,000 $4,061 $5,441 $0 Q1 03 Q1 04 F/X Neutral Net Sales F/X Impact 31% Growth Excluding F/X Impact 42 Our Results Net Sales Mix -- TTM ($MM) North America Sales Mix Worldwide Sales Mix $115 3% $116 $935 2% $1,244 27% 22% $2,351 70% International Sales Mix $309 $1 $4,351 13% N/A 76% Media Electronics and Other General Merchandise $2,000 43 Other (Merchant.com & Misc. Marketing) 87% Our Results Gross Margin -- TTM $1,400 26% $1,347 24.9% Up 30% $1,200 24% 23.6% $1,040 $1,000 22% Q1 03 Q1 04 Gross Profit Gross Margin Maximize Margin Dollars, Not Percentages 44 Our Results International Revenue -- TTM ($MM) $2,310 $2,400 55% Growth Excluding F/X Impact Up 74% 40% of WW Revenue From International (UK, Germany, Japan & France) $1,324 $1,200 46% of Revenue From Shipments to Customers Outside of U.S. (Including Exports) 5% Segment Operating Margin $0 Q1 03 Q1 04 Long Term Expectation -- 50%+ of Sales to Customers Outside the US 45 Our Results Consolidated Segment Operating Expenses -- TTM 40% 37% Sales Growth % Y/Y 28% 19.6% Opex as a % of Sales 20% 16.4% 14.6% Opex Growth % Y/Y 1% 0% Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Leveraging Cost Structure 46 Our Results Consolidated Segment Operating Income* -- TTM Operating Income Operating Margin ($MM) 7% $450 8% $411 Up 184bps Up $188MM 5% $223 $225 4% $0 0% Q1 03 Q1 04 Q1 03 Q1 04 Long Term Expectation -- Low Double Digit Operating Margins 47 * See Appendix Our Results First Quarter