November 9, 2010

Amazon.com Inc. (NASDAQ: AMZN, $171.99 ) HOLD

Internet Media & Commerce Price Target: $145.00
Mayuresh Masurekar, CFA
212.292.8149 Thoughts on Quidsi Acquisition
mmasurekar@kbro.com KEY POINTS
STOCK DATA • AMZN announced acquisition of Quidsi (parent of Diapers.com and Soap.com)
52-Week Range $172.53 - $105.80
for approximately $545M
YTD Stock Return 27.85% • Expect $480M-$520M in incremental revenues for 2011 (1.5 point benefit to
YTD S&P Return 9.70%
Daily Volume 6,369,235 growth)
Shares Outstanding 449.000MM
Market Cap $77,223.5MM • No direct benefit to operating profit as Quidsi business running at breakeven
Enterprise Value $71,502.5MM
Net Cash Per Share $12.74 • Large market segment with small and growing online presence
Tangible Book Value $4,628.00
Dividend Yield 0.00% • Potential synergies from less aggressive pricing, customer acquisition
Book Value 6,397.00
Balance Sheet Date 09/30/2010 • Reiterate HOLD thesis on strong top-line growth and continued margin
Net Cash $5,721.0MM pressure
ESTIMATES DETAILS
2009A 2010E 2011E
Revenue (Net)
• Announced acquisition of Quidsi. On Monday morning, Amazon announced
March $4,889.0A $7,131.0A —
acquisition of Quidsi, the parent company of Diapers.com and Soap.com, for $500M
Previous — in cash and $45M in debt and other obligations. The deal is expected to close in
June $4,651.0A $6,566.0A — Dec. 2010. Diapers.com, launched in 2005, sells a variety of baby products, while
Previous —
Sept $5,449.0A $7,560.0A — Soap.com, launched in mid-2010, sells household consumable products.
Previous —
Dec $9,519.0A $12,794.0 —
• Impact on financials. Diapers.com had 2009 revenues of $182M, with 2010E
Previous — revenues of $300M (up 65% Y/Y). (See page 2 for historical revenues). We expect
FY $24,508.0A $34,051.0 $43,549.0 Quidsi (which also includes Soap.com) to post revenues of $480M-$520M in 2011,
EV/Revenue 2.9x 2.1x 1.6x
indicating a 1.5 point benefit to Amazon's annual growth rate. We note that Quidsi's
EPS (Net) business has been running at breakeven, as the company reinvested for growth,
March $0.53A $0.85A — especially in marketing. We do not expect any material benefit to Amazon's
Previous —
June $0.54A $0.69A — operating income for 2011. We will update our forecasts once the acquisition closes.
Previous —
Sept $0.62A $0.72A — • We view this acquisition as a long-term positive, as: 1) Amazon increases its
Previous — exposure to a large market segment (baby products), which is young in terms of its
Dec $1.07A $1.02 — online presence; and 2) the deal has synergies in various areas including pricing,
Previous —
FY $2.78A $3.28 $4.68 given the recent strong price wars between these two companies; marketing, given
P/E 61.9x 52.4x 36.8x the aggressive search spend (see page 2) as well as customer acquisition across
PF EPS. GAAP EPS estimates are $2.34 in 2010, $3.46 in platforms. We view baby products as a category with an attractive demographic,
2011. with frequent and relatively high order value purchases. Though the purchase price
may seem high at 1.8x 2010 sales, we view it as reasonable given the high growth
1 Year Price History for AMZN
rate - implying 1.1x 2011 sales and 0.7x 2012 sales.
180
160
140 • Margins in the baby products business: We note that Diapers.com has had low
120
100 gross margins at 4% initially, 7%-9% in early 2010 and the business should continue
80
Q3
2010
Q1 Q2 Q3
2011
to have comparatively low margins due to the need to stay price-competitive and
shipping costs from big, bulky items and fast, free shipping. The key to future margin
Created by BlueMatrix expansion lies in the ability to cross-sell higher margin discretionary baby products
to loyal consumable customers.
COMPANY DESCRIPTION
• Reiterate HOLD. We continue to believe that while Amazon has excellent long-term
Amazon.com, Inc., is the largest e-commerce retail
company globally. In the U.S., Amazon offers its growth prospects, the stock should trade sideways over the next 12 months due to
customers a wide array of media, electronic and margin pressure, fully priced valuation and uncertainty around the shift to digital
general merchandise spanning 19 distinct format in media. The Quidsi acquisition fits into our overall thesis of strong top-line
categories. The company also operates in six growth with continued margin pressure. That said, we believe Amazon deserves
countries. kudos for being able to grow at a high rate despite a very large base. Our $145 price
target implies a 31x P/E on 2011 PF EPS, or 1.0 PEG.

Please see pages 5-6 of this document for important disclosures. 1

 Diapers.com revenue growth
700 400%
630
600 350%

300%
500 450
250%
400
300 200%
300
150%
182
200
100%
89
100 50%
35
2.5 11
0 0%
2005 2006 2007 2008 2009 2010E 2011E 2012E

Diapers.com revenues Revenue Y/Y growth rate

Source: News reports, KBRO estimates

Note: Numbers above do not include revenues from recently launched Soap.com

Recent marketing wars between Amazon and Diapers.com

Source: Google, Business Insider

Please see pages 5-6 of this document for important disclosures. 2

 Amazon.com (AMZN) KBRO

Income Statement Rev 0 7360 12304 Mayuresh Masurekar (212) 292-8149

EBITDA 0 -- 851 2359 3048
($ in mil, except per share) EPS $0.00 $0.79 $1.37 3.82 4.90
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10E 2008 2009 2010E 2011E
North America Sales $2,578 $2,451 $2,843 $4,956 $3,780 $3,590 $4,126 $7,036 $10,227 $12,828 $18,532 $24,062
International Sales 2,311 2,200 2,606 4,563 3,351 2,976 3,434 5,758 8,939 11,680 15,519 19,486
Net Sales 4,889 4,651 5,449 9,519 7,131 6,566 7,560 12,794 19,166 24,508 34,051 43,549

Cost of Sales 3,741 3,518 4,176 7,543 5,501 4,957 5,786 10,078 14,896 18,978 26,322 33,512
Gross Profit 1,148 1,133 1,273 1,976 1,630 1,609 1,774 2,716 4,270 5,530 7,729 10,037

Operating Expenses
Fulfillment 407 389 444 732 528 558 657 1,087 1,596 1,972 2,830 3,581
Marketing 124 124 144 268 196 204 234 422 468 660 1,056 1,311
Technology & Content 239 253 267 298 319 350 386 448 883 1,057 1,503 1,816
General & Administrative 56 63 68 81 80 91 96 128 230 268 395 483
Stock-Based Compensation 67 85 90 100 87 111 107 141 276 342 446 642
Amort/Other 11 60 9 21 26 25 26 38 (24) 101 115 109
Total Operating Expenses 904 974 1,022 1,500 1,236 1,339 1,506 2,265 3,429 4,400 6,346 7,941

Operating Income - GAAP 244 159 251 476 394 270 268 452 841 1,130 1,384 2,096
Operating Income - Pro Forma 322 304 350 597 507 406 401 631 1,093 1,573 1,945 2,847

EBITDA 409 388 440 709 626 535 551 887 1,381 1,946 2,599 3,520

Total Non-Operating Expenses 4 20 11 (5) 7 27 24 4 58 30 62 34

Pre-Tax Income 248 179 262 471 401 297 292 456 899 1,160 1,446 2,130
Taxes 69 39 60 85 100 80 79 121 246 253 380 533
GAAP Net Income 177 142 199 384 299 215 231 335 653 907 1,066 1,598
Pro Forma Net Income 233 239 275 483 384 314 328 467 824 1,230 1,493 2,161

GAAP EPS $0.41 $0.32 $0.45 $0.85 $0.66 $0.47 $0.51 $0.73 $1.51 $2.05 $2.34 $3.46
Pro Forma EPS $0.53 $0.54 $0.62 $1.07 $0.85 $0.69 $0.72 $1.02 $1.91 $2.78 $3.28 $4.68

Basic Shares 429 431 432 440 445 447 448 450 423 433 447 453
Fully-Diluted Shares 437 440 441 450 454 455 456 458 432 442 456 461

Y/Y % Change
North America Sales 21% 13% 24% 36% 47% 46% 45% 42% 26% 25% 44% 30%
International Sales 15% 16% 33% 48% 45% 35% 32% 26% 33% 31% 33% 26%
International - ex FX 28% 28% 35% 37% 40% 40% 41% 37% 31% 33% 37% 23%
Net Sales 18% 14% 28% 42% 46% 41% 39% 34% 29% 28% 39% 28%
Net Sales - ex FX 25% 20% 29% 37% 42% 42% 40% 40% 28% 29% 41% 27%
Gross Profit 20% 17% 27% 47% 42% 42% 39% 37% 27% 30% 40% 30%
Operating Expenses 18% 15% 20% 39% 36% 45% 49% 51% 27% 25% 46% 24%
PF Operating Profits 25% 24% 52% 66% 57% 34% 15% 6% 29% 44% 24% 46%
PF Net Income 26% 33% 62% 67% 65% 32% 19% -3% 34% 49% 21% 45%
EBITDA 27% 23% 43% 63% 53% 38% 25% 25% 26% 41% 34% 35%
Pro Forma EPS 23% 30% 60% 62% 58% 27% 15% -5% 32% 46% 18% 43%

Expenses - % of Sales
COGS 76.5% 75.6% 76.6% 79.2% 77.1% 75.5% 76.5% 78.8% 77.7% 77.4% 77.3% 77.0%
Fulfillment 8.3% 8.4% 8.1% 7.7% 7.4% 8.5% 8.7% 8.5% 8.3% 8.0% 8.3% 8.2%
Marketing 2.5% 2.7% 2.6% 2.8% 2.7% 3.1% 3.1% 3.3% 2.4% 2.7% 3.1% 3.0%
Technology and Content 4.9% 5.4% 4.9% 3.1% 4.5% 5.3% 5.1% 3.5% 4.6% 4.3% 4.4% 4.2%
G&A 1.1% 1.4% 1.2% 0.9% 1.1% 1.4% 1.3% 1.0% 1.2% 1.1% 1.2% 1.1%
Amort as % of Revs 0.2% 1.3% 0.2% 0.2% 0.4% 0.4% 0.3% 0.3% -0.1% 0.4% 0.3% 0.3%
SBC as % of Revs 1.4% 1.8% 1.7% 1.1% 1.2% 1.7% 1.4% 1.1% 1.4% 1.4% 1.3% 1.5%
Total Op. Expense (PF) 16.9% 17.8% 16.9% 14.5% 15.7% 18.3% 18.2% 16.3% 16.6% 16.1% 17.0% 16.5%
Tax Rate 27.8% 21.8% 22.9% 18.0% 24.9% 26.9% 27.1% 26.5% 27.4% 21.8% 26.3% 25.0%

Margins
Gross Margin 23.5% 24.4% 23.4% 20.8% 22.9% 24.5% 23.5% 21.2% 22.3% 22.6% 22.7% 23.0%
EBITDA Margin 8.4% 8.3% 8.1% 7.4% 8.8% 8.1% 7.3% 6.9% 7.2% 7.9% 7.6% 8.1%
PF Operating Margin 6.6% 6.5% 6.4% 6.3% 7.1% 6.2% 5.3% 4.9% 5.7% 6.4% 5.7% 6.5%
GAAP Operating Margin 5.0% 3.4% 4.6% 5.0% 5.5% 4.1% 3.5% 3.5% 4.4% 4.6% 4.1% 4.8%
Pro Forma Net Income Margin 4.8% 5.1% 5.1% 5.1% 5.4% 4.8% 4.3% 3.6% 4.3% 5.0% 4.4% 5.0%
Incremenatal PF Opr. Margin 8.5% 10.0% 10.0% 8.5% 8.3% 5.3% 2.4% 1.0% 5.6% 9.0% 3.9% 9.5%
Source: Kaufman Bros. estimates, Company data.

Please see pages 5-6 of this document for important disclosures. 3

 Amazon.com (AMZN) Mayuresh Masurekar, CFA (212) 292-8149
KBRO
Revenue Breakdown 7,560 12,794
($ in millions, except per share) Revenues 0 7360 12304 33342 41686
#DIV/0! 2.7% 4.0% 2.1% 4.5%
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10E 2008 2009 2010E 2011E
Revenues
Net Sales 4,889 4,651 5,449 9,519 7,131 6,566 7,560 12,794 19,166 24,508 34,051 43,549
Y/Y chg 18% 14% 28% 42% 46% 41% 39% 34% 29% 28% 39% 28%
FX benefit (loss) -268 -227 -41 354 185 -48 -83 -497 127 -182 -443 447
Foreign Exchange Impact -6% -6% -1% 5% 4% -1% -2% -5% 1% -1% -2% 1%
Net Sales (ex FX) 5,157 4,878 5,490 9,165 6,946 6,614 7,643 13,290 19,039 24,690 34,493 43,101
Net Sales (ex FX) 25% 20% 29% 37% 42% 42% 40% 40% 28.3% 28.8% 40.7% 26.6%

North America
N. America Media $1,305 $1,148 $1,412 $2,099 $1,597 $1,324 $1,591 $2,351 $5,349 $5,964 $6,863 $7,647
as % of total revenue 27% 25% 26% 22% 22% 20% 21% 18% 28% 24% 20% 18%
Y/Y chg 8% 0% 13% 20% 22% 15% 13% 12% 16% 11% 15% 11%
Q/Q chg -25% -12% 23% 49% -24% -17% 20% 48%
N. America Electronics & Other (EGM) 1,172 1,187 1,293 2,662 2,024 2,090 2,326 4,392 4,429 6,314 10,832 15,186
as % of total revenue 24% 26% 24% 28% 28% 32% 31% 34% 23% 26% 32% 35%
Y/Y chg 42% 29% 36% 54% 73% 76% 80% 65% 41% 43% 72% 40%
Q/Q chg -32% 1% 9% 106% -24% 3% 11% 89%
N. America Other 101 116 138 195 159 176 209 293 449 550 837 1,230
as % of total revenue 2% 2% 3% 2% 2% 3% 3% 2% 2% 2% 2% 3%
Y/Y chg 6% 16% 29% 33% 57% 52% 51% 50% 37% 22% 52% 47%
Q/Q chg -31% 15% 19% 41% -18% 11% 19% 40%
North America Sales Total 2,578 2,451 2,843 4,956 3,780 3,590 4,126 7,036 10,228 12,829 18,533 24,063
as % of total revenue 53% 53% 52% 52% 53% 55% 55% 55% 53% 52% 54% 55%
Y/Y chg 21% 13% 24% 36% 47% 46% 45% 42% 26% 25% 44% 30%
Q/Q chg -29.0% -4.9% 16.0% 74.3% -23.7% -5.0% 14.9% 70.5%

International
Int'l Media $1,418 $1,294 $1,517 $2,580 $1,833 $1,550 $1,759 $2,890 $5,734 $6,809 $8,032 $9,110
as % of total revenue 29% 28% 28% 27% 26% 24% 23% 23% 30% 28% 24% 21%
Y/Y chg 6% 3% 21% 37% 29% 20% 16% 12% 24% 19% 18% 13%
Y/Y chg ex FX 17% 12% 22% 26% 23% 21% 18% 23% 22.4% 20.8% 21.7% 10.5%
Q/Q chg -25% -9% 17% 70% -29% -15% 13% 64%
Int'l EGM 874 882 1,064 1,947 1,489 1,399 1,644 2,823 3,112 4,767 7,355 10,215
as % of total revenue 18% 19% 20% 20% 21% 21% 22% 22% 16% 19% 22% 23%
Y/Y chg 33% 44% 54% 68% 70% 59% 55% 45% 50% 53% 54% 39%
Y/Y chg ex FX 50% 60% 58% 58% 61% 63% 60% 56% 48% 55% 58% 36%
Q/Q chg -24% 1% 21% 83% -24% -6% 18% 72%
Int'l Other 19 24 25 36 29 27 31 45 93 104 132 162
as % of total revenue 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Y/Y chg 19% -8% 9% 29% 53% 13% 24% 26% 63% 12% 27% 22%
Y/Y chg ex FX 40% 10% 14% 18% 47% 18% 33% 37% 61.3% 13.9% 31.1% 19.4%
Q/Q chg -32% 26% 4% 44% -19% -7% 15% 46%
Total International 2,311 2,200 2,606 4,563 3,351 2,976 3,434 5,758 8,939 11,680 15,519 19,486
Total International 47% 47% 48% 48% 47% 45% 45% 45% 47% 48% 46% 45%
Y/Y chg 15% 16% 33% 48% 45% 35% 32% 26% 33% 31% 33% 26%
Y/Y chg ex FX 28% 28% 35% 37% 37% 38% 35% 37% 31% 33% 37% 23%
FX Benefit (Loss) (268) (227) (41) 354 185 (48) (83) -497 127 -182 -443 447

Consolidated Sales
Total Media 2,723 2,442 2,929 4,679 3,430 2,874 3,350 5,240 11,083 12,773 14,894 16,757
as % of total revenue 56% 53% 54% 49% 48% 44% 44% 41% 58% 52% 44% 38%
Y/Y chg 7% 1% 17% 29% 26% 18% 14% 12% 20% 15% 17% 13%
Total EGM 2,046 2,069 2,357 4,609 3,513 3,489 3,970 7,215 7,541 11,081 18,187 25,401
as % of total revenue 42% 44% 43% 48% 49% 53% 53% 56% 39% 45% 53% 58%
Y/Y chg 38% 35% 44% 60% 72% 69% 68% 57% 45% 47% 64% 40%
Total Other 120 140 163 231 188 203 240 338 542 654 969 1,392
as % of total revenue 2% 3% 3% 2% 3% 3% 3% 3% 3% 3% 3% 3%
Y/Y chg 8% 11% 25% 32% 57% 45% 47% 46% 41% 21% 48% 44%
Source: Kaufman Bros. estimates, Company data.

Please see pages 5-6 of this document for important disclosures. 4

 Rating and Price Target History

Rating and Price Target History for: Amazon.com Inc. (AMZN) as of 11-08-2010

03/26/09 04/24/09 05/26/09 07/24/09 10/23/09 12/29/09 01/27/10 01/29/10 04/27/10 08/19/10 10/22/10
I:H:$69 H:$74 H:$83 H:$87 H:$120 H:$155 B:$155 B:$160 UR:NA H:$135 H:$145

200

160

120

80

40

0
Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3
2008 2009 2010 2011

Created by BlueMatrix

Guide to Kaufman Bros. Ratings - Distribution and Definitions*

IB Serv./Past 12 Mos.
Rating Count Percent Count Percent

BUY [B] 35 70.00 0 0.00

HOLD [H] 15 30.00 1 6.67
SELL [S] 0 0.00 0 0.00

BUY: We believe the stock will outperform its peer group over the next 12 months due to superior fundamentals and/or
positive catalysts.
HOLD: We believe the stock will perform in line with its peer group over the next 12 months due to full valuation and/or lack of
catalysts.
SELL: We believe the stock will underperform its peer group over the next 12 months due to overvaluation, deteriorating
fundamentals, and/or negative near-term catalysts.
* Excludes stocks with ratings under review.

Analyst Certification
I, Mayuresh Masurekar, CFA, hereby certify that the views expressed in this research report accurately reflect my personal
views about any and all of the subject securities or issuers referred to in this document. Furthermore, no part of my
compensation was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in this report.

Research Disclosures
Kaufman Bros., L.P. makes a market in AMZN.

800 Third Avenue, 30 th Floor, New York, NY, 10022 Tel: 212.292.8100 Fax: 212.292.8103 KBRO Trading Desk: 1.800.437.5276
www.kbro.com
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 Disclaimers
This report is for informative purposes only. Under no circumstances is it to be construed as an offer to sell or a solicitation to
buy any security. The information contained herein has been obtained from sources believed to be reliable, but its accuracy
and completeness, and that of the opinions based thereon, are not guaranteed. Kaufman Bros., L.P., its affiliates and
subsidiaries, and/or its officers and employees may from time to time acquire, hold, or sell a position in the securities
mentioned herein. Kaufman Bros., L.P. may also perform investment banking or other services for, or solicit investment
banking or other business from, any company mentioned in this report.
The analyst(s) responsible for preparing this report may receive compensation based upon various factors including the firm's
overall profitability, a portion of which is derived from investment banking revenues.

Our equity research product is deemed to be a consulting service.

Valuation Methodology
Kaufman Bros., L.P., methodology for valuation analysis, including the assigning of ratings and price targets, may take into
account many factors including, but not restricted to, the following: market capitalization, maturity of business, volatility of
business and security, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash
flow (CF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium
(discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12
months.
Risk Relating to Our Price Target and Rating
The financial instruments discussed in this report will not be suitable for all investors and should generally be viewed as
speculative. Investors must make their own financial decisions based upon their specific investment objectives and financial
situation. Past performance of the financial instruments discussed in this report should not be taken as an indication of future
results. The price, value of and income from any of the financial instruments mentioned in this report can rise as well as fall
and could be affected by many factors including but not limited to changes in economic, financial and political factors,
competitive dynamics, and any event that impacts the company being discussed including overall market conditions. If a
financial instrument is denominated by a currency other than the investor's home currency, fluctuations in exchange rates
could adversely affect the price of, value of or income derived from the financial instruments described in this report. In
addition, investors in securities whose values are affected by the currency of the underlying security, effectively assume
currency risk.

© 2010 KAUFMAN BROS., L.P. All rights reserved. Reproduction without permission is prohibited. Additional information
available upon request.

800 Third Avenue, 30 th Floor, New York, NY, 10022 Tel: 212.292.8100 Fax: 212.292.8103 KBRO Trading Desk: 1.800.437.5276
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