Whopping Revenues at Amazon, But…

Amazon.com, which reported record third-quarter revenues of $851 million, said its free shipping offers aimed at increasing order size appear to be working and will remain as promotions at least through the holidays.

However, the question ultimately will be whether the promotions will drive enough revenue to eventually produce real profits, not the pro forma kind. It’s the classic retailer’s dilemma: can you make up through volume what you lose by lowering prices?

The after-hours market was asking the same question, sending Amazon’s share price down about $1.

The Seattle-based online retail giant said third quarter net sales were up 33 percent from the $639 million it reported in the same period a year earlier.

And the company’s operating loss was down significantly, to $10 million, including restructuring-related and other charges of $37 million, compared with a loss of $70 million a year ago. The GAAP net loss was $35 million, or 9 cents per share during the quarter, compared with a loss of $170 million, or 46 cents per share, a year earlier.

CEO Jeff Bezos said that based on the results so far “…we’ve made the decision to leave Super Saver Shipping free on orders over $25 … at least through the holidays.”

But during a conference call on the company’s financial results, Bezos could offer no assurance that the incentive will become permanent. “It is very expensive,” he said.

Analysts agree that the promotion so far has more than made up for the extra operational cost in increased volume, although some see pressure on profit margins.

“I had forecast revenues of $805 million and they reported $851 million. I’d say it was a pretty impressive performance,” Jeetil Patel, an analyst with Deutsche Bank Securities in San Francisco, told Reuters.

Pro forma operating profit was $27 million, or 3 percent of net sales, exceeding the company’s guidance of between $8 million and $17 million. This compares with a pro forma operating loss of $27 million in the third quarter 2001, an improvement of over $54 million.

Looking forward, the company said that fourth quarter net sales are expected to be between $1.325 billion and $1.425 billion. Fourth quarter pro forma operating profit is expected to be between $70 million and $95 million. Analysts had been predicting on average revenue of $1.25 billion for the fourth quarter.

The company said it expected revenues in 2003 to be up more than 10 percent over 2002 levels, and expected its 2003 profit to exceed $200 million on a pro forma basis.

One analyst for Credit Suisse First Boston was quoted as saying that “this was the first time since the year 2000 that Amazon posted a positive sequential revenue growth in a non-holiday quarter.”

One of the key drivers of Amazon’s growth is its international segment, where sales from the company’s UK, German, French and Japanese sites grew 90 percent to $264 million, and each site’s sales grew by over 60 percent.

Third-party seller transactions (new, used and refurbished items sold on Amazon.com product detail pages by businesses and individuals) grew sequentially to 23 percent of North American units, compared with 16 percent of units a year ago.

Core Books, Music and DVD/Video segment sales growth rate increased 17 percent.

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