Amazon Holds To Q4 Profitability Call – Despite Flat Sales in Q3

Addressing perhaps the most closely watched prediction in e-commerce, e-tail giant Amazon.com (Nasdaq: AMZN) on Tuesday reiterated its call for an operating profit in the fourth quarter of this year.

Amazon made the announcement as it reported results for the third quarter ended September 30th. Despite the fact that revenue remained virtually the same as it was in the year-earlier quarter, Amazon announced that its operating loss had dropped 60 percent, to US$27 million.

“We’ve lowered our operating costs 20 percent and can now afford to drive growth by lowering prices for customers,” Amazon founder and chief executive officer Jeff Bezos said. “If you’re buying books over $20 from anywhere but Amazon.com, you’re probably wasting money.”

Before the announcement, Amazon stock gained 78 cents Tuesday, or 8.9 percent, closing at $9.55. However, in early trading Wednesday, the stock fell $1.92 — 20.1 percent — to $7.63.

Time To Juggle

In its history as an e-commerce bellwether, Amazon first sacrificed profitability in pursuit of growth, then sacrificed growth in pursuit of profitability. Investors and analysts now are sure to demand both at once.

For the recently completed quarter, Amazon reported revenue of $639 million, not even 1 percent higher than the $638 million recorded in the third quarter of 2000.

Analysts had predicted revenue between $625 and $664 million, with the average prediction at $650 million.

A Loss … Is a Loss … Is a Loss

Amazon reported its third-quarter loss in three different ways Tuesday. In addition to the pro forma operating loss, the Seattle, Washington-based company said its pro forma net loss (including net interest expense) was $58 million — or 16 cents per share — matching consensus analyst estimates provided by First Call/Thomson Financial.

However, when other items such as stock-based compensation, amortization of goodwill and restructuring costs were included, Amazon lost $170 million (46 cents per share), compared to $241 million (68 cents per share) a year earlier.

Amazon’s fulfillment costs in the recently completed quarter remained the same as they were in the second quarter — 13 percent of net sales.

Milestones To Go

“We are pleased that our quarterly results were again in line with our guidance, and with our recent order trends,” Amazon chief financial officer Warren Jenson said. “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.”

Amazon predicted that fourth quarter 2001 sales would increase anywhere from zero to 10 percent from a year earlier, ending up between $970 million and $1.07 billion. First Call estimates had previously pegged that target at $1.1 billion.

The company predicted that after ending this year with $900 million in cash and marketable securities, reserves would fall to approximately $550 million after the first quarter of 2002. However, Amazon said that it then “expects to generate” funds for the remaining nine months of 2002.

Struggling Books

Observers may well be troubled that Amazon’s core category — books, music and video sales — showed a year-over-year sales decline in Q3 of 12 percent and in gross profit of 14 percent. Net U.S. sales in the segment fell from nearly $400 million in the year-earlier quarter to $351.4 million in the recent quarter.

Income from retail services also fell from a year earlier, though the company did see slight gains in its electronics, tools and kitchen sector.

Amazon’s overall revenue from U.S. sales and services fell by nearly $50 million to $500.8 million. However, international sales and services made up that shortfall almost exactly, rising nearly $51 million to $138.5 million.