Is 'Units Sold' an Accurate Metric for Amazon?

Is this metric meaningful in judging Amazon’s (AMZN) performance regarding Sales and Profit?

It was generally reported by various services in the US that:

• Transaction Volume was up 5%,
• Purchases of big ticket items were down substantially,
• Average sales per unit have decreased, and
• There are questions regarding Amazon announcing its “Best Ever Holiday Season”, based on Units Sold.

Amazon started its business 14 years ago selling only small and easily packaged items - books.

Over the years it evolved into a company that began selling more expensive big ticket items, many through third party sellers on which it earned a small commission. Currently Amazon has items listed on its site for prices in excess of $1,000,000, such as a 8.16 carat diamond for $1,188,265.00. Sales of higher priced items have helped its sales numbers greatly increase over the years.

Over the past 4 years, Amazon’s Sales Revenue has doubled in part due to the expansion of its product lines, which include electronics, furniture, appliances, computers, food, clothing, wine, cameras, phones, games, jewelry, etc. Many of the items sold are sold through Third Party Sellers that inventory and ship the goods, while Amazon collects the sales proceeds. Below are the reported Sales and Net Income of the company for the past 4 years.

Revenue years ended December 31

• 2007....$14.8 Billion
• 2006......10.7
• 2005.......8.5
• 2004.......6.9

What should be noted is that in this 4 year period, Sales increased from $6.9 bn to $14.8bn, an increase of $7.9 bn or 115%. Net Income decreased from $588mn to $476mn, a decrease of $112mn or 19%. The company currently has a very high price earning ratio of 35.

Net Income years ended December 31

• 2007...$476 Million
• 2006.....190
• 2005.....359
• 2004.....588

Is Amazon’s current reporting of Units Sold a meaningful metric of judging the results or success of its Christmas sales? Why weren’t its sales figures reported? If it can report Units Sold, it could just as easily report sales. From two-year-old article, quoted below, online growth was primarily from items in the big ticket category, but currently this category is doing poorly.

Amazon recently issued a press release claiming the company had the “best ever” holiday sales season:

...Amazon customers ordered more than 6.3 million items on Dec. 15, 2008 compared with roughly 5.4 million on its peak day last year, the company said. It shipped more than 5.6 million products on its best day, a 44 percent rise over 2007, when it shipped about 3.9 million on its busiest day...

CNET News 12-27-06, “Pricey items find buyers":

Online growth was driven primarily by increases in big-ticket categories such as jewelry and watches (up 66 percent), video game consoles (up 54 percent) and consumer electronics (up 33 percent), as well as in popular gift categories such as video games (up 65 percent), ComScore found.

And according to NZCity:

People are shying away from buying big ticket items for Christmas.
Electronic transactions company Paymark says transaction volumes are up five percent on last year, but spokesman Paul Whiston says the value of the transactions are down, indicating that people are not spending as much as usual.

Amazon, in its releases, ignores Sales Revenue, Average Selling Price per Unit and Profit Margin, and simply reports limited information of Units Sold. Moving merchandise at little or no profit does not mean much to the bottom line or to an outside shareholder. It appears that Amazon’s main interest is increasing the Top Line Sales Figure at the expense of the bottom line. As mentioned above, over the past 4 years, Sales increased $7.9bn while Net Income decreased $112mn to $476mn. It would be helpful to the investing public if more complete information was disclosed.

Disclosure: Short AMZN.