Mary Meeker Speaks Out On Amazon

It looks like Mary Meeker, Wall Street's most influential tech analyst, is touting the first mover and other advantages driving Amazon.com's successes that I've been criticized for believing as a shareholder since 1998. Today she said,
"AMZN reported C1Q00 revenue of $574MM (up 95% Y/Y, down 15% Q/Q in a seasonally weak quarter), ahead of our estimate of $541MM. Gross profits were $128MM, with a gross margin of 22.3%, ahead of our 19.5% estimate. Operating loss was $99MM, better than our $105MM estimate, and significantly better than the $175MM loss in C4Q99. Operating EPS of $(0.35) was better than our estimate and the First Call mean of $(0.36). We believe that C4Q99 was AMZN's worst quarter in terms of operating loss, and the key thing to watch for going forward is improvement relative to that performance. That said, we are encouraged by the C1Q results -- operating loss declining $76MM Q/Q to $99MM -- although we do not believe AMZN is out of the woods yet. A key challenge for AMZN going forward will be reducing operating losses Q/Q as a percent of revenue and in absolute terms. Two customer lifetime value indicators improved nicely in C1Q. 1) Trailing 12-month sales per active customer (one who purchased during the past 12 months) was $121, up from $116 in C4Q99 and $107 in C1Q99. The success of AMZN's long term business model is highly dependent on increased wallet share, and we believe we're starting to see the first signs of this. 2) Customer acquisition costs (sales and marketing expenses, excluding fulfillment, divided by new customer adds) declined from $19 in C4Q99 to $13 in C1Q. Note that these costs are among the lowest of any major Internet commerce company and demonstrate the power of AMZN's brand and first-mover advantage. AMZN's position is one that few e-commerce companies will ever be able to achieve.

Nextel at $10 Is A Bargain

(Disclosure: Author owns NXTL securities) 90 days ago, Wall Street consensus put Nextel's 2003 earnings at -$.26 per share. 60 days ago? -$.06 per share. 30 days ago? $.01 per share. 7 days ago? $.11 per share. Today? $.32 per share. The #5 U.S. Wireless provider's 10.3 million customers and its #1 customer growth rate imply its passing #4 Sprint PCS is almost a given during the next few months. While Sprint PCS shrunk last quarter and Verizon's growth is slowing, Nextel has been adding over 100,000 customers per month. It's churn rate (2% customer loss per month) is the lowest in the industry, solidifying it's long-term market share gains. More good news. Nextel is the only major service with one button "walkie talkie" direct connect services that come free to most customers. Customer service ratings are improving, and its network of independent dealers is bloodying the nose of competitors--particularly Sprint PCS. Nextel brags the top spot with corporate customers are businesses who sign up scores of employees and don't churn easily. Nextel's $71 average revenue per customer per month is 30% higher the industry average. In 2003, I feel that Nextel consensus number will continue to rise above $.50 per share, giving it a current multiple just north of 20 times 2003 earnings. It's not a stock without its risks, so an inexpensive protective put may be a good idea for large positions. I am looking for a rise 50% to 100% over the next 12 months. Investor's Business Daily's Reinhardt Krause summed it up best, "Nextel, which focuses on business customers rather than consumers, added 480,000 net subscribers in the third quarter. That's about par with the year-earlier quarter. The company is doing better than most other U.S. carriers. No. 2 Cingular Wireless and Sprint PCS both lost customers in the third quarter, and subscriber growth at AT&T Wireless fell 73%."

Satellite Radio Starting to Take Off

Is it possible to find a fast-growing, strengthening, subscriber-based business in these troubled times? Barron's says that XM Satellite Radio (XMSR) is ready to deliver faster than expected subscriber growth--and I think they have got it right. I will be adding a couple thousand shares to my portfolio now that its leadership and funding has been clearly established. Sure enough, the company beat its own estimate for new subscribers this quarter. It's competitor, Sirius (SIRI) suffered a blow when the world's largest automaker, General Motors, chose to use XM satellite radio exclusively. Honda and others have also joined XMSR, propelling it to grow much faster than the weakened SIRI, who may not even be able to hang onto its supply deal with Ford, and may not be viable as a standalone business. Sirius (SIRI) has some 'serious' problems--it offers fewer channels and fewer options to subscribers, and is just not picking up momentum in revenue or new subscribers. XM needs about 3 million subscribers to breakeven, and has already exceeded the 500,000 mark in just a few short months. Consensus (although only few are covering the stock) estimates about one million subs at year end. I believe this number will come in around 1.3 to 1.5 million, given the accelerating dominance over its only weakening competitor, the cheap ad environment, as well as the growing non-auto and rural user base XMSR is executing by lowering subscriber acquisition costs, hitting faster than expected subscriber growth, and by having secured a competitive dominance that will be extremely difficult to displace. I feel the stock has some significant risk, but will likely hit $12 or more in the next 12 months--double its current price. The increased analyst attention to the emergence of a winner will follow as XMSR will continue to exceed revenue and subscriber estimates.