A look back at Amazon’s 1997 IPO
Amid techs current rally, Seattle is enjoying the updraft. Amazon, one ofthe areas two critical tech companies, is busy setting records.
Shares of Amazon, the e-commerce and cloud computing leader, have busily risen, recently crestingthe $1,000 per-share mark. That per-share price is up from Amazons 52-week low of $682 and change.
Driving that valuation is continued growth, improved cash flow, and widespread adoption of its cloud computing unit. As the company reported in itsfirst-quarter earnings, its revenue grew 23 percent to $35.7 billion, and its trailing operationalcash flowgrew to $17.6 billion, up from $11.6 billion in the year-ago period. In that same first quarter, AWS grew its revenue from $2.6 billion to $3.7 billion.
All that and Amazon is said tohave an appetite for Slack, thepopular business chat startup, and has made overtures concerning Whole Foods, for which it hasbid $13.7 billion. Even for todays platform ecosystem, Amazons footprint is broad.
Today and back then
But it wasnt always so. Today, lets turn back the clock and peek at Amazons S-1 document it filed in 1997. What did Amazon look like back then, and if you could go back in time, could you convince yourself to bet the house on the tiny company?
Perhaps, but were looking backward for more reason than curiosity. Instead, just as its interesting to read pitch decks from companies that have since become behemoths, its worth our time to examine the S-1 documents of the now-giants. What can we see in their numbers that might help us better understand later offerings?
To that end, lets go back a few decades, to the year in which the first Harry Potter book was published, and Metallica released Reload.
Before Alexa, Prime, and reasonably quick internet, Amazonfiled to go public.
Back then, Amazon was a simpler entity. Its S-1 is plain about what it did back then: Amazon.com is the leading online retailer of books. To underscore that leading status, Amazon included some metrics in the following paragraph so small that they feel quaint by todays standards: Average daily visits (not hits) have grown from approximately 2,200 in December 1995 to approximately 80,000 in March 1997[.]
The company explained its market by detailing the scale of the book market. To wit:
The worldwide book industry is large, growing and relatively fragmented. According to Euromonitor, U.S. book sales were estimated to be approximately $26 billion in 1996 and are expected to grow to approximately $30 billion in 2000, while worldwide book sales were estimated at approximately $82 billion in 1996 and are expected to grow to approximately $90 billion in 2000.
Notably, Amazons quarterly revenue is now larger than the United States book industry was per year back in those days.
Back in 1997, Amazon was tiny, with just 256 employees listed at the end of itsmost-recentlycompleted quarter. That figure, however, was up from 11 in the fourth quarter of 1995. But despite its modest employee scale, and its tailored industry focus, Amazon successfully went public at a young age.
How? Lets take a look at the numbers.
While many companies spentdot-commoney on comically silly things, when Amazon went public it was a surprisingly efficient shop. Here, in screenshot form, are its performance notes from its S-1:
In case the format isnt suited for reading, we can translate a little bit.
In 1996, Amazon grew its revenue from $511,000 to $15.75 million, or about 2,982 percent. Returning to our point concerning efficiency, Amazon did lose more money in 1996 than it did in 1995. Its losses grew from $303,000 to $5.78 million.
But when westackthat next to a modern rule, say, the Rule of 40 that a companys growth rate plus its profit margin should equal 40 Amazon was destroying benchmarks. And during its period of hyper-growth to boot.
That Amazon was so not-unprofitable at its then-young age at that particular pace of growth is impressive. The company was certainly riding a secular shift in the economy toward digital commerce, but the company, at the time of its IPO, was in solid shape.
Even more so, Amazons growth was hardly seasonal. As you can see in the above set of statistics, Amazon grew its revenue from $4.17 million in the third quarter of 1996 to $8.47 million in the fourth quarter of that year. But the first quarter of 1997 effectively doubled the holiday quarters tally with $16 million intopline.
Or, more simply, in the quarter before its IPO, Amazon posted more revenue than it had in the preceding year. At that pace of growth, Amazon must have been worth billions, and in the process of raising hundreds of millions in its IPO, right? Wrong.
A modest offering
Something fun about covering 1997 news is that we get to quote 1997 news. Soheres CNet covering Amazons IPO in that year, after noting that its debut had [s]ilenc[ed] any doubts about its chances on the public market:
Initially, [Amazon] had been set for a $12-to-$14 range, then got bumped up to $14 to $16 before the companys investment bankers settled on the $18 price.  The IPO raised $54 million for Amazon, giving the company a market value of $438 million.
Amazon closed at, again quoting CNet, 23-1/2. It was a good result for the internet shop, which would go on to split several times before thedot-comboom wentdot-combust. Today, decades later, Amazon is worth around 1,000 times as much as it was at the time of its IPO. Google Finance pegs the current value of Amazon at $463.55 billion, making it one of the smaller two of the Big 5, but it is still impressively up from its initial public valuation.
The scale of its IPO, however, shouldnt be viewed as humility. In a great look at Amazons run-up to its IPO,CNBC reportedthat Amazons prep was incredibly accelerated:
Way back when Bezos was taking the company public, he was already defying convention.  In early 1997, Amazon was coming off a year in which it generated less than $16 million in revenue. But in March of that year, Bezos gathered his top brass as well as the underwriters and lawyers together in Seattle to get an IPO rolling.
CNBC goes on to note that Amazon and its hired hands then got its S-1 together in 12 days.
We could talk about a host of other points from its S-1 and IPO, including the companys cash position,highcost of revenue (compared to the software companies we spend too much time observing), and even its declining net loss as a percent of revenue. But its competition is the most interesting.
Remember how quickly Amazon was growing at the time of its IPO? The firm put some of the credit for that on its nascent industry:
The online commerce market, particularly over the Internet, is new, rapidly evolving and intensely competitive, which competition the Company expects to intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites at a relatively low cost.
In that new, rapidly evolving climate, Amazon saw its competition in three buckets:
- [V]arious online booksellers and vendors that might compete with it directly.
- Big tech companies who derive a substantial portion of their revenues from online commerce, including AOL and Microsoft Corporation.
- The brick-and-mortar crew, namely large specialty booksellers, with significant brand awareness, sales volume and customer bases, such as B&N and Borders.
Amazon goes on to note that both the two physical booksellers had, at the time, announced their intention to devote substantial resources to online commerce in the near future. Oops! But recall that, at the time, Amazon was a mote of dust in terms of scale.
Incredibly fast revenueexpansion, efficient growth, and an early IPO would make Amazon an oddity in todays market, where companies wait longer to go public while pursuing less profitable paths to growth by the time they file.
Thats likely the most useful thing to keep in mind: WhataboutAmazon is different than what we see today? And do those differences highlight a weakness in modern tech shops looking to go public, or do the underscore why Amazon was an outlier after its flotation?