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Amazon Executes Where Others Falter

Amazon.com earnings

They say that even in the worst of economic downturns there are still a few winners, and in the current slide, e-commerce giant Amazon is looking like one of them.

Amazon (NASDAQ: AMZN) reported fourth-quarter earnings today after the market closed, blowing away analysts' estimates. The day after Christmas, Amazon announced that the 2008 holiday season was the "best ever" in its 14-year history.

But many on the Street had feared that the Web's leading retailer would later reveal that the season's profits had been sapped by slashing prices in order to remain competitive.

Not so. Amazon reported quarterly income of $225 million, or 52 cents per share, 33 percent above analysts' consensus of 39 cents. Fourth-quarter profit was up 9 percent from the same period last year, when Amazon turned in net income of $207 million, or 48 cents per share.

Compare that with eBay (NASDAQ: EBAY), Amazon's chief rival, which last week reported a 31 drop in year-over-year profit while absorbing the first decline in gross revenue in its history.

Meantime, Amazon enjoyed fourth-quarter revenue of $6.70 billion, an 18 percent jump from the same period in 2007, when it raked in $5.67 billion. For the most recent quarter, the Street had been expecting $6.44 billion, according to polling by Thomson Reuters.

For the full year, Amazon's revenue increased 29 percent to $19.17 billion over $14.84 billion in 2007. Net income totaled $645 million, or $1.49 per diluted share, up 36 percent from a year earlier.

"We remain relentlessly focused on serving customers with low prices, great selection and free shipping offers, including Amazon Prime," CEO Jeff Bezos said in a statement. Amazon Prime is the company's fee-based two-day shipping program.

"We're particularly grateful for the unusually strong demand for Kindle in the fourth quarter," Bezos added.

Kindle, Amazon's popular e-book reader, has been widely rumored to be getting an upgrade. Amazon does not provide sales figures for the Kindle, which has also generated some concerns that it would cut into the company's core trade in traditional print titles.

On a conference call with analysts, Bezos dismissed concerns that the e-book business would erode that portion of Amazon's business.

"We see that when people buy a Kindle, they actually continue to buy the same number of physical books going forward as they did before they owned a Kindle," he said. Coupled with the added sales of e-book titles, "what we're seeing is very strong incremental book-unit sales."

Amazon's retail segments are its strongest business lines, accounting for 97 percent of fourth-quarter revenues. But the fastest-growing segment was what Amazon defines as "other," which includes its Amazon Web Services (AWS) cloud computing operations.

At just three percent of total revenue, offering small businesses and individuals cloud-based storage and processing power is still a sidelight on Amazon's balance sheet. But with 33 percent year-over-year growth, AWS is gaining steam, and Bezos looks for continued growth with larger firms looking to outsource their datacenter operations.

"We think there is a very significant and meaningful opportunity over time for our enterprise-level customers with our Web Services business," he said. The firm has been making brisk progress bringing large players into the cloud, Bezos added. "We expect that trend to continue."

This isn't the first time that Amazon has bucked the market trend. In July, when the economy was already showing major signs of weakness and consumer spending was in decline, Amazon reported a 102 percent year-over-year jump in second-quarter profits.

[cob:Special_Report]While Amazon's solid fourth quarter exceeded analysts' expectations, many had already pegged the e-commerce giant to be one of the beneficiaries of the recession.

"We think Amazon's competitive positioning is actually strengthening during the current downturn, and Amazon should continue to gain share of both overall retail and e-commerce," Barclays analyst Doug Anmuth said in a research note ahead of today's earnings report.

Amazon shares rose more than 13 percent in after-hours trading as of press time.

Update adds comments from earnings call.