Analysts and investors have a question for Amazon.com Inc founder and Chief executive Jeff Bezos: When will your company make money? It has been seven years since the company was founded and Bezos hasn't answered, one reason shares of the biggest Internet retailer have plunged 85 percent since December 1999, when Bezos was named Time magazine's "Person of the Year."
"They still have to prove they can get to profitability,'' said Jefferies & Co analyst Michael Legg, who rates Amazon.com shares a "hold."
The company, which has accumulated losses of US$2.7 billion, is one of the last surviving Web retailers that put off making money in favor of expansion.
PHOTO: BLOOMBERG
Pets.com Inc, Webvan Group Inc, Garden.Com Inc and other Internet stores that took the same approach have filed for bankruptcy or closed.
Bezos, 37, says he is focusing on profitability, and is leading an effort that he calls "Get the CRAP out" to identify items that "Can't Realize Any Profit." Bezos says he will either turn these products into money-makers or dump them.
Bezos said the company would earn money in the fourth quarter. Don't look for net income, because what Bezos defines as profit excludes expenses such as amortization of goodwill and interest on the company's US$2 billion in debt.
Amazon.com after regular trading yesterday said its second-quarter loss, excluding certain expenses, narrowed to US$58 million, or US$0.16 a share, from US$116 million, or US$0.33, a year ago.
The average forecast was for a loss of US$0.22, according to a poll of analysts by First Call/Thomson Financial.
The bottom-line loss was US$168 million, or US$0.47 a share, compared with a loss of US$317.2 million, or US$0.91, a year ago.
Sales rose 16 percent to US$668 million. In April, the company forecast sales of US$650 million to US$700 million.
Amazon.com shares fell as much as 7 percent to US$14.85 after the company reported financial results.
"The larger question is `Do people want to buy on the Internet,'" said Darren Chervitz, research director at Jacob Internet Fund.
Bezos owns about 32 percent of Amazon.com's stock. He drew a salary of US$81,840 last year, and, as in previous years, requested no additional pay.
To reduce losses, Bezos is looking at ways to streamline order fulfillment.
Vendors now are asked to repackage cumbersome products to make them easier to handle. Others, such as a lawn chair that took 15 minutes to pack, no longer are offered, Bezos said.
Productivity gains are crucial to Amazon.com because sales growth is slowing, analysts said. First-quarter US sales of books, music and videos -- the company's largest business -- rose 2 percent, compared with a 50 percent year-to-year jump in the first quarter of last year.
Warehouse workers are unloading goods faster and reducing the number of orders filled incorrectly, Jeff Wilke, senior vice president of operations, said last month at the analyst meeting.
Idle time has been cut and bottlenecks develop less often on conveyor belts that transport goods across warehouses, he said.
The company has said it will end the year with US$900 million in cash and marketable securities, up from US$643 million at the end of the first quarter.
Chief financial officer Warren Jenson in January said Amazon.com won't need to tap the securities markets for additional financing "unless we choose to raise cash to further strengthen our balance sheet or for strategic flexibility."
The addition of an electronics store, Amazon.com's biggest sales category last quarter after US books, music and video, helped lure shoppers, analysts said. Bezos earlier this month said electronics may eventually become Amazon.com's largest merchandise category.
Bezos said he also wants to develop new product categories, boost overseas sales and enter partnerships in which Amazon.com delivers goods for other retailers, as it does for Borders Group Inc and Toys "R" Us Inc.
Some analysts doubt many other retailers will team with Amazon.com. Reported talks with Wal-Mart Stores Inc earlier this year didn't result in an alliance. Wal-Mart has declined to comment on the discussions or its plans for Internet alliances.
"We suspect that Amazon's management had hoped that it would be able to sign a deal with a major retailer, but it appears that most retailers are fairly happy with their e-commerce" systems, Sanford C. Bernstein analyst Faye Landes wrote in a report. "Now that the e-commerce frenzy has died down, they are not anxious to split with Amazon whatever profit may exist."
Landes rates Amazon.com shares a "sell" along with three other analysts, according to Bloomberg data. Sixteen analysts rate the shares "buy" and 11 rate the shares "sell." Later this year, Amazon.com will begin selling personal computers and expand its book business to target institutional buyers such as schools, libraries and corporations. Institutional book sales may add as much as US$150 million in revenue in the next 18 to 24 months, Amazon.com said last month.
The company also generates revenue from services, such as the Amazon.com Honor System, which lets other Web sites collect donations from the public.
Amazon.com processes the donations, which are made via credit card, in exchange for a 15 percent fee.
Bezos said a week ago at a celebration of the five-month old program that more than 6,000 sites participate in the system.
For some Web sites, donations are a vital source of funding now that "advertisements aren't paying the bill," Bezos said.
"This isn't the solution for a big company, but it certainly works for a small company to help cover costs." Investors and analysts are still waiting for Amazon's solution.
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