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.”

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