Seeking Alpha
, Think Finance (775 clicks)
Long/short equity, arbitrage, event-driven, research analyst
Profile| Send Message|
( followers)  

As is usual with Amazon.com (NASDAQ:AMZN) this time of the year, it has issued yet another cryptic press release extolling the great accomplishments of this money-losing order-by-mail retailer. Amazon.com goes to great lengths to make any number both incredible-sounding and somewhat hard to decode, so this time I decided to also go to some length in decoding what precisely Amazon.com is saying in this press release and what it means for the entire company.

So here we go… point by point on Amazon.com's "Customer Purchases"

Fifty Shades of Grey (indeed)

Amazon customers purchased enough copies of the "Fifty Shades" trilogy by E.L. James, including "Fifty Shades of Grey," "Fifty Shades Darker," "Fifty Shades Freed" and the trilogy box set, to create a stack 445 times taller than the Space Needle.

The Space Needle is 184 meters tall, times 445 that gives us 81880 meters or 8188000 cm. The "50 Shades of Grey" book is 7.9 x 5.1 x 1.1 inches. Here comes the doubt, would Amazon.com stack the books as usual (laying them one over the other) or stack them along their longest dimension? We don't know. But the difference is significant. Stacking them along their depth (1.1 inches, 2.794 cm) gives us 2.93 million books sold on the series. Stacking them along their height (7.9 inches, 20.066 cm) gives us 408000 books sold. This is between $3.7 million and $26.4 million in revenue, at the present $9 retail price being shown on Amazon.com.

Daniel Craig

The cumulative weight of the "Bond 50" Blu-ray sets purchased by Amazon customers this holiday season would be 800 times the weight of Daniel Craig.

A Blu-ray disk plus packaging comes to 4-5oz, at 32 grams per oz we get 128-160 grams per disk. This set carries 23 disks, so 2.944kg to 3.68kg. Daniel Craig is 5' 10" (1.78 m) and 81-86 kg / 178.57-189.60 lbs. Using the midpoint of 83.5kg for Daniel Craig and 3.312kg for the box set, and taking into account the weight of 800 Daniel Craigs, we get 20169 sets. Now an interesting tidbit comes in, there was a promotion, and though these are listed as high as $320 today, most of the box sets were actually sold during that promotion where the sets sold out. The promotion was for $99/set. 20169 sets at $99 gives us just under $2 million in revenues.

Slices of fruitcake

If each customer that purchased a copy of Just Dance 4 played the game for one hour, the total number of calories burned would equal half a million slices of fruitcake.

First, how many calories are there in a slice of fruitcake? We don't know the exact size of this slice, but actually the "calories in slice of fruitcake" is a pretty popular Google search. Everybody seems worried about all the fruitcake intake they're having. Answers range from 275 calories to 375 or so. The middle of the range would be about 325 calories.

Now how many calories does playing Just Dance 4 burn per hour? Presumably, it would be about the same as dancing for an entire hour. Again, the calorie burn rate varies with the intensity and with the person's weight, but a good estimate would be around 400 for some lively dancing.

So we have 500000 x 325 calories / 400 calories per hour, that's 406250 Just Dance 4 games sold. With it retailing at $29.99, that's $11.9 million in revenues.

TVs and the NFL

Amazon customers purchased enough TVs to cover the field of every NFL stadium.

The NFL is the top football league in the U.S. It is composed of 32 teams. Each football field is 360 feet by 160 feet, or 57600 square feet. 57600 square feet is 8294400 square inches. Times 32 that's 265.42 million square inches.

As for a TV, the most common size right now should be 32 inches in the 16:9 format, which has an area of 437.55 square inches.

Put this all together and it would mean Amazon.com sold the equivalent to 606607 32-inch TV sets. A common price for such a set would be around $299, so we could be talking of around $181 million in revenues just on these TVs or a bit above 0.8% of Amazon.com's Q4 consensus revenue estimates. This also highlights something, this particular product dwarfs all the others Amazon.com is referring to in the press release. Big-ticket, expensive, electronics, is what ends up making a lot of Amazon.com's revenues. It is also the kind of product that's more sensible to having to collect sales taxes.

Abbey Road

Amazon customers purchased enough vinyl copies of The Beatles albums that if laid flat would extend 20 times the length of Abbey Road in London.

The typical 12 in (30 cm) vinyl LP comes in a 12.375 in (31.43 cm) square box. Abbey Road in London is 2.1km in length. So 20 times 2.1 comes to 42km, or 4.2 million cm. 4200000/31.43 is 133630 vinyl LPs. The pricing on these varies wildly, but for instance "Sgt. Pepper's Lonely Hearts Club Band" can be had for $19.99. If all were at around that price on average, we'd be talking about $2.67 million in The Beatles vinyl albums, still quite impressive given how outdated the (vinyl) technology is. The Beatles in vinyl probably does more for Amazon.com than most MP3 and CD groups.

Woodstock

The Amazon MP3 store has sold enough music for everyone at Woodstock'69 to jam out to another three days of music for peace and love.

We're going to have to make a few assumptions here. It was estimated that Woodstock'69 was performed in front of around 500000 concert-goers. The concerts covered around 21 x 3 hours, or 63 hours. Not all concert-goers heard the entire concert, but if we were to assume they did, this would make for 31.5 million listening hours. If we take the average MP3 track to cover around 5 minutes, then Amazon.com would have to have sold 378 million tracks. This doesn't actually seem realistic unless Amazon.com is not referring to this holiday season but to "ever." Anyway, 378 million MP3 tracks comes to $374.22 million if every track was sold at $0.99. However, Amazon.com prices many tracks as being "free" and there is probably considerable adverse selection at work here, so the number is probably much lower.

The lamp

If you stacked every Christmas Story Leg Lamp purchased by Amazon customers this holiday season, the height would reach the top of Mt. Everest.

The Mt. Everest is 8848 meters or 884800 cm. The Christmas Story Leg Lamp comes in two sizes: A desktop model at $49.99, 20" (50.8 cm) tall; a full-scale model at $149.99, 45" (114.3 cm) tall.

Taking into account this, Amazon.com could either be referring to the desktop model, and thus to 17417 lamps, or $870692. Or it could be referring to the full size model, at 7741 lamps, or $1161077. Splitting the difference would be around $1 million in revenues.

Garden gnomes

Amazon customers purchased enough sports team garden gnomes to fill every seat in Madison Square Garden.

Ah, finally an easy one. That would be around 19000 sports team garden gnomes. It turns out that sports garden gnomes are pretty cheap but their prices vary a lot. They can be had for as cheap as $5 and then go up to $49.99. Still, $15 seems common enough. 19000 of them at that price would come to just $285000.

Tall trees

Amazon customers purchased enough Angry Birds plush toys to stretch 285 times the height of the tallest tree in the world, located in California's Redwood Forest.

The world's tallest tree is around 369 feet high. 285 times that is 105165 feet. Now those plush toys are around 5 inches tall. One foot is 12 inches, so we have 105165 * 12 / 5 toys, or 252396 of them. At $8 or so each, that's a bit over $2 million in Angry Birds plush toys. Now Amazon.com just has to pray that all those toys weren't being shipped for free because that would make for a nice loss.

Chicago O'Hare Airport

Amazon's third-party sellers sold enough Lindt truffles to serve one to every traveler passing through Chicago O'Hare Airport over a weekend.

During 2011, Chicago O'Hare Airport handled an average of 182249 passengers per day. Although there is certainly some seasonality to these numbers, but ignoring that would make for around 364499 passengers over a 2-day period (weekend). Now the problem here would be whether a 60-count Lindt truffle box could be used to satisfy multiple passengers. If it could, then the statistic would be somewhat underwhelming. 6075 such boxes would satisfy those 364499 passengers. Each box costs $16.99, so you could buy all of them for $103214.

The International Space Station

Amazon's third-party sellers sold enough HDMI cables to make three round-trips to the International Space Station

The International Space Station maintains an orbital altitude of between 330 km (205 miles) and 410 km (255 miles). Taking the midpoint, 370 km and multiplying it by 2 gives us the length of a round-trip - 740 km. Times 3 that is 2220 km.

An HDMI cable is usually 2 meters in length. 2220000 / 2 = 1.11 million cables. HDMI cables can be had at many prices, starting as low as $3.99 and going as high as $19.99 or more, but $5.99 would be typical. So $6.65 million in HDMI cable revenues (for the third parties, a little over 10% or so of that for Amazon.com).

Conclusion

Adding all the estimated revenues included in the press release comes to between $211.3 million and $608.2 million (if we include the dubious $374 million estimate on MP3s). This is between 0.95% and 2.75% of the consensus revenue estimates for Q4 2012, and it actually overestimates the relevance of these sales, because some of them are by third parties and are thus overestimated (since Amazon.com will only collect a selling commission on those).

In short, this kind of press release is a bona fide handful of sand thrown in the shareholder's eyes, all of these accomplishments put together would incredibly still fall under being "materially" relevant for Amazon.com's stock valuation. Yet they are given a press release, while things such as the number of Kindles sold -- which could be material -- or the impact of collecting sales taxes in California and Texas are never addressed by Amazon.com's management.

This is hardly what one would expect from a money-losing order-by-mail retailer to justify trading at 3000 times earnings. Amazon.com continues to be a clear short and will end up being cut in half or worse no matter how many cryptic, deceiving, press releases like this one it puts out.

Source: Decoding Amazon.com