What Works For Amazon?

Attempting to understand Amazon.com's finances is like exploring the banks of its rain-forest namesake with a blunt machete. E-tailing is as vast--and maybe less explored. Jeff Bezos' territory ($1 billion in sales per quarter) is no exception.

Yet it is time for a reckoning. In anticipation of this week's crucial earnings announcement (Remember the make-or-break holiday season?), analysts have been abuzz with pre-mortems. We already know Bezos won't announce a dime of profit,but that's not all we're looking for. Level-headed Amazon watchers say it's best to divine the company's destiny thusly:

--FIRST-TIME SHOPPERS. At the end of the 1999 Christmas season, 27% of Amazon users were newbies. Analysts' predictions this time around are closer to 20%. Amazon veterans are buying roughly the same amount per week. So without more new shoppers, even today's slumping stock price could sag against those of other big retail chains.

--DIVERSITY. Amazon needs to graduate from selling books, music and video tobig-ticket items. Only 35% of its customers bought from its other stores, like electronics and toys. And since Amazon got a third of its holiday traffic from partner Toys "R" Us, 35% is really not that impressive.

--DEBT. Is Bezos planning to raise more cash? His inventory and shipping bills this January will be huge. The $1.1 billion in Amazon's bank should cover that. But if Bezos borrows more for the future, that will depress the already dismal market for Amazon bonds.

--EFFICIENCY. Amazon loves sending you stuff faster than you expected. But at what price? Fulfillment costs as a percentage of sales, now at 15%, need to drop to about 5% to allow profitability.

--GLOBAL SALES. Tons of cash went to Amazon's European stores last year. Any returns on investment? If not, then it's a raft down that eponymous river, sans paddle.