Even as Amazon, the online retailer, reported another jump in its quarterly revenue, analysts continued to express concern on Tuesday about the company's ability to get its costs under control.
The 20 percent increase in first-quarter revenue and a 35 percent decline in earnings -- attributed largely to a change in the reporting of employee stock options -- mostly conformed to expectations.
But while Amazon executives moved to assure Wall Street that they expected the growth rate of certain expenses to "decrease substantially" in the second half of the year, that was not enough to suit some analysts.
"What investors were looking for was for spending to go lower," said Safa Rashtchy, an analyst with Piper Jaffray. "But at least costs didn't go up even further."
Amazon executives said overall expenses rose 26 percent, to US$441 million, in the quarter, while spending on technology and research and development alone rose 59 percent, to US$146 million.
"The cost of feeding the growth engine here is too high to be sustained," said Steve Weinstein, an analyst at Pacific Crest Securities.
Amazon continues to offer expensive promotions as a way of keeping customers and increasing cross-selling among product categories, including free shipping on orders over US$25 and Amazon Prime, which gives customers unlimited shipping for US$79 a year.
Tom Szkutak, Amazon's chief financial officer, told analysts that Amazon Prime was a major factor in the company's revenue growth. While company executives declined to estimate how much the shipping promotions cost Amazon, Szkutak said they were saving customers almost half a billion dollars a year.
Amazon's sales rose to US$2.28 billion in the quarter, from US$1.9 billion in the year-earlier period, slightly surpassing analysts' average estimate of US$2.22 billion.
Amazon reported that net income fell to US$51 million, or US$0.12 a share, from US$78 million, or US$0.18 cents a share, a year earlier, largely in line with estimates of analysts surveyed by Thomson Financial. Last year's quarterly results included a one-time gain of US$26 million, or US$0.06 cents a share, from stock option expensing.
Looking ahead to the second quarter, Amazon forecast sales of US$2.03 billion to US$2.18 billion. The company raised its guidance slightly for the full year. Net sales are now expected to be US$9.95 billion to US$10.5 billion, representing growth of 17 percent to 24 percent from the 2005 level. The company had previously forecast sales of US$9.85 billion to US$10.45 billion for the year.
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