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Amazon Expects a Merry Christma$

If Amazon.com really is a bellwether e-tailer, then it may well be a merry online Christmas this year as the company, reporting its earnings after the bell, reiterated its prediction that it will achieve pro forma profitability in the fourth quarter.

For the third quarter, the company reported that its pro forma net loss, which includes net interest expense, improved 35 percent to $58 million, or 16 cents per share, compared with a loss of $89 million, or 25 cents per share in the third quarter of 2000. That 16-cent figure was exactly what most analysts were expecting.

On the revenue side, Amazon posted net sales of $639 million compared to net sales of $638 million in the third quarter of 2000. Revenues were down slightly from the $650 million consensus estimate from analysts.

"I think this is going to be a very good holiday season for Amazon.com," CEO Jeff Bezos said in a CNBC television interview. "I think this is going to be a value-oriented consumer..."

He also renewed predictions that the company will be pro-forma profitable in the fourth quarter.

Amazon stock was gaining ahead of its earnings report. The stock closed at $9.55, up 78 cents or 8.89 percent. After the report came out, as expected, the stock slipped back in after-hours trading and at one point was down to $9.23.

On a fully diluted basis for the third quarter, Amazon lost $170 million, or 46 cents per share, compared to a loss of $241 million, or 68 cents per share a year earlier.

"We continue to expect pro forma operating profitability for the fourth quarter, and while there are no guarantees, we are well positioned to achieve this important milestone," said Warren Jenson, Amazon.com's chief financial officer. He said that the third quarter represents the seventh sequential quarter in which Amazon's pro forma loss has declined

"As we leave the third quarter, our business has never been stronger," Jenson said in a conference call, noting that Amazon's "used business," launched only 11 months ago, reached 17 percent of third quarter revenues.

"Reaching fourth quarter profitability requires no heroics, just execution," Jenson said.

"We've lowered our operating costs 20 percent and can now afford to drive growth by lowering prices for customers," said Bezos. "If you're buying books over $20 from anywhere but Amazon.com, you're probably wasting money."

Indeed, fulfillment costs improved to 13 percent of net sales, from 15 percent of net sales a year ago.

Bezos also said during the conference call that Amazon will launch a magazine store in the fourth quarter.

Amazon said its U.S. retail and services segments combined were slightly profitable on a pro forma operating basis for the second straight quarter; results improved to a $1 million profit, from a loss of $29 million in the third quarter a year ago. Net sales from international sites rose 58 percent to $138 million for the third quarter, from $88 million.

For the fourth quarter, Amazon said net sales are expected to be flat to up 10 percent compared to the fourth quarter of 2000, or between $970 million and $1.07 billion. Gross margin is expected to be between 22 percent and 25 percent of net sales.

For its second quarter, Amazon reported a pro forma loss (excluding certain charges) of 16 cents a share, 6 cents better than estimates. Revenues of $668 million came in at the low end of $650 to $700 million estimates, and the company guided third-quarter revenues down to $625 million to $675 million from earlier estimates of $733 million.