RealTime IT News

Amazon: Low-Price Leader with Full-Year Profit

Amazon.com reported better cash flow, increasing sales, improved operating income and its first full-year profit for 2003 during its fourth quarter results released Tuesday.

But the squeeze on its margins isn't going to go away -- and that's all part of the plan, according to CEO Jeff Bezos.

Thanks to a record holiday-selling season, Amazon.com said its net income for the last three months in 2003 was $73.2 million (17 cents per share). During the same, year-ago quarter, Amazon.com's profit was $2.7 million (1 cent per share).

Revenues were $1.95 billion in the fourth quarter, up 36 percent from the last quarter of 2002 when it took in $1.43 billion. However, $98 million of that increase was due to changes in foreign exchange rates.

Overall, the strong fourth quarter results worked out to a full-year profit of $35.3 million (8 cents per share) for Amazon.com -- its first since it began operations -- based on annual revenues of $5.26 billion. In 2002, it declared a loss of $149.1 million (39 cents per share), based on revenue of $3.93 billion.

In a conference call with financial analysts, Bezos and Tom Szkutak, senior vice president and CFO, sought to address analysts' concerns over the company's gross margins.

The Seattle, Wash.-based e-tailer is determined to become the Wal-Mart of the Internet, even if relentless price chopping cuts into its margins.

"Expect to see, year over year, pressure on gross margins," said Szkutak. "Our model is working. We're seeing great growth with operating margins expanding even, as gross margins come down." Szkutak said the company will continue to invest heavily in new categories and keep lowering prices and extending free shipping.

The company's active seller accounts increased 70 percent, and it added three new stores: gourmet food, health and personal care, and jewelry and watches, with more branded stores from high-profile merchants such as Harry & David and Sees Candies.

Bezos told analysts that his customers are driven by three desires: convenience, selection and low prices, but that it hasn't determined which is most important. Meanwhile, he said, "We're making the choice to return the operating efficiencies to customers in form of significantly lower prices and SuperSaver shipping." When analysts pressed the execs about the focus on bargain pricing, they emphasized that lower profit margins are a conscious choice, not a mistake.

"We're not trying to optimize the company for gross margins," Bezos said. "For years and years, we'll consistently give those back to customers."