Amazon.com, the online bookseller that has established one of the best-known brand names on the Internet, announced today that it will launch an initial public offering (IPO) of 2.5 million shares of common stock.
Though the company is often cited as an example of early Internet commerce success, it posted net losses for 1996, and now is faced with large marketing expenditures as it tries to boost its market presence in the face of increasing competition from traditional publishing giants.
Amazon.com said the proposed maximum IPO price is US$13 per share, valuing the company at $299 million. After the IPO, Jeffrey P. Bezos, the company's president, chief executive officer and chairman, will own 43% of the outstanding common stock. Members of Bezos' family and trusts controlled by family members will own 10 percent of the post-IPO stock.
In filing a registration statement with the Securities and Exchange Commission today, Amazon.com also said it has granted underwriters an option to purchase up to 375,000 additional shares from the company for the purpose of covering any overallotments. Deutsche Morgan Grenfell Inc. is acting as lead manager, and Alex. Brown & Sons Inc. and Hambrecht & Quist LLC are acting as co-managers for the proposed underwriting group.
Amazon.com is an online retailer of books, offering over 2.5 million titles through a search and retrieval interface. The company has no specific plan for the $33.9 million of expected net proceeds from the offering, officials said in a statement. However, it expects to use the proceeds for general corporate purposes, including working capital to fund anticipated operating losses and capital expenditures.
The company could use a cash infusion to bolster its war chest to do battle against traditional publishers that are just now coming online. Barnes & Noble Inc. last week started doing business on America Online. In addition, Simon & Schuster, the publishing arm of Viacom Inc., introduced a site last month.
At a recent Jupiter Communications Inc. conference here, Bezos said the company's success will depend in large part on its ability to establish its brand name and reach enough of a sales volume to realise economies of scale.
Meanwhile, in its efforts to stay ahead of the increasing competition, the company said it expects to incur substantial operating losses for the foreseeable future as a result of heavy investment in marketing and promotion, site development and technology.
In fact, in a statement accompanying its filing, the company said the rate at which such losses will be incurred will increase significantly from current levels, and its recent revenue growth rates are not sustainable and will decrease in the future.
Since its inception in 1994, Amazon.com has incurred significant losses, and at the end of 1996 had accumulated deficits of $6 million. By the end of 1996, Amazon.com had sales of more than $16 million. But the company incurred a net loss of $5.7 million for 1996, compared to a loss of $303,000 the year before.
Earlier this month, the company began discounting its Amazon.com 500 and other featured books by 40% from list price. The company may in the future expand or increase the discounts it offers to its customers and may otherwise alter its pricing structures and policies, officials said. However, the company anticipates that its March 1997 pricing change and any further price reductions will reduce gross margins below those experienced during 1995 and 1996.
But the company believes that the net proceeds from the IPO, together with its current cash, will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for the next 12 months. If these funds are insufficient to satisfy the company's liquidity requirements, it may seek to sell additional equity or debt securities or to obtain a credit facility, according to the company.
Amazon.com can be reached at http://www.amazon.com/.