February 2, 2012, 4:24 PM

Peeling back the onion on Amazon

Amazon is stingy with information about business development, but here are a few nuggets.

Amazon.com Inc. is the world’s biggest online retailer and a big public company to boot. As such they—and their public financial documents—should be a cornucopia of information on what Amazon.com has up its sleeve in the way of future plans.

But when it comes to explaining what’s really happening in the way of new strategies and company direction, Amazon is notoriously close-mouthed and somewhat stingy with any forthcoming information. To get a real sense of what Amazon, No. 1 in the Internet Retailer Top 500, does see as important, observers need to close pay attention to the little foreshadowing company executives do provide financial analysts on the quarterly earnings call and what’s new in the company filings.

Here are a few nuggets I gleaned on how Amazon sees its future business plans shaping up by listening to the year-end earnings call and looking at their just-released annual report:

  • International sales. Amazon’s net sales outside of North America totaled $21.37 billion in 2011, up 38% from $15.49 billion in 2010. International sales accounted for 44.5% of revenue in 2011. But the European debt crisis has Amazon taking a more conservable look at its overseas growth in 2012. “We don't view ourselves as a bellwether for the economy, but certainly we're seeing that it is softer,” chief financial officer Thomas Szkutak told analysts on the company’s year-end earnings call on Tuesday.It’s hard to quantify how much higher that international growth would have been. But we're all seeing the same thing in terms of the reports in Europe and it's certainly soft. So it is impacting our overall growth rate, but hard to tell how much.”
  • Fulfillment centers. Fulfillment expenses as a percentage of total sales increased sharply in 2011. Spending on fulfillment increased 58.1% to $4.57 billion in 2011 from $2.89 billion in 2010. Fulfillment expenses last year equaled 9.5% of net sales. But look for Amazon to keep on adding to its distribution square footage—and more fulfillment hubs in 2012. Amazon now leases nearly 50 million square feet of office, technology and fulfillment space and more is on the way. “We added 17 new fulfillment centers in 2011,” Szkutak said. “That's globally. We do plan, based on the strong growth, to add more in 2012.”
  • Patent infringement suits. Defending itself against patent infringement lawsuits is an ongoing battle for Amazon. The company’s annual report reveals that Amazon is now named in 22 patent infringement lawsuits, including nine that were filed in the third and fourth quarters.
  • Acquisitions. Amazon made several substantial acquisitions in 2011, especially overseas. In July, Amazon acquired The Book Depository International, a U.K.-based online bookseller that sells to customers in more than 100 countries. Terms were not disclosed. The Book Depository, established in 2004, sells books and e-books and offers free delivery to customers worldwide. In January 2011, the world’s biggest online retailer also acquired LoveFilm International Ltd., a London-based video rental and streaming company with annual sales of about $158.8 million. Terms for the deal weren’t disclosed, but Amazon has held a 40% ownership share in LoveFilm since 2008. In all Amazon spent $771 million on acquisitions in 2011, up 238.2% from $228 million in 2010, according to the annual report. “The primary reasons for these acquisitions, none of which was individually material to our consolidated financial statements, were to expand our customer base and sales channels, including our consumer channels and subscription entertainment services,” says Amazon.

As I mentioned it’s hard to pull information from Amazon, especially regarding the new initiative reporters, financial analysts and competitors are most interested in: sales and profits related to its Kindle electronic reader, tablet and digital content business. In its year-end earnings release Amazon included plenty of statistics on how well it says its electronic book reader and tablet business development is doing—but no unit sales figures. Over the nine-week holiday period ended Dec. 31 Amazon would only say Kindle and Kindle Fire sales increased 177% over the previous year.

But stay tuned for what will turn up moving forward. Kindle and digital content, including streaming media, are two areas of growth—and development expenses—for Amazon to dribble out information about in the future.

In the meantime I’ll keep the magnifying glass handy and be back with future gleanings on what Amazon is up to in later blog posts. And if you want to do some digging yourself, click here to see their full 2011 annual report.

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