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Sat, Jul 24, 2004 - Page 12 News List

Amazon now in the black, but misses analysts' forecasts

NY TIMES NEWS SERVICE , NEW YORK

Amazon.com said on Thursday that it swung to a profit in the second quarter, but its shares dropped sharply in after-hours trading because the results missed analysts' expectations.

The company reported net income of US$76.5 million, or US$0.18 a share, missing analysts' forecasts of US$0.19. That is in contrast to a loss of US$43.3 million, or US$0.11 a share, in the period a year earlier.

Revenue rose 26 percent, to US$1.39 billion in the quarter, the company's fourth consecutive profitable one.

Company executives attributed the swing to profitability to a sharp rise in international sales and to its strategy of low prices and free shipping.

Sales outside the US rose 50 percent, to US$595 million, while domestic sales increased 13 percent, to US$792 million. Excluding a US$47 million benefit from changes in foreign exchange rates, net sales grew 22 percent during the quarter.

The executives said Amazon's offer of free shipping was increasing sales worldwide and that it planned to continue the program indefinitely. Jeffrey Bezos, Amazon's chief executive, has long contended that a strategy of lower prices would ultimately lead to greater profitability.

"While free shipping is expensive for the company, it saves our customers tens of millions of dollars each quarter, and we plan to keep it in place indefinitely," Bezos said.

Tom Szkutak, the chief financial officer, said the company planned to continue lowering its prices through the end of the year.

"We intend to further lower customer prices in the second half of this year and thereafter," he said. "Our goal is to maximize gross profit dollars, not percentages, ultimately maximizing free cash flow and free cash flow per share for shareholders."

Bezos also said the company planned to increase its hiring during the third quarter, including the opening of a new fulfillment center in Scotland.

Looking ahead, the company raised its forecast for the third quarter, estimating revenue of US$1.4 billion to US$1.5 billion, an increase of 26 percent to 34 percent compared with sales in the period a year earlier. The company expects net sales for the year to be US$6.6 billion to US$6.9 billion.

"I think Amazon still has a solid model and a good business, but growth is clearly slowing down and spending is increasing," said Safa Rashtchy, an analyst at Piper Jaffray.

"The growth from here is going to be more difficult and they have to spend to get there," Raschtchy said.

During the quarter, Amazon continued to add new product lines, including a beauty supply store and a jewelry store.

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