Amazon.com has been here before.
In late 1999, Amazon's stock price vaulted into the triple digits, fueled by exuberance over the promise of e-commerce. But by 2001, slammed by the double whammy of a recession and the popping of the Internet bubble, the stock had collapsed back into the single digits.
Now, Amazon shares are back in the stratosphere, propelled this time by improved profit margins and swelling revenues.
On Tuesday the company announced a third-quarter profit of US$80 million, a threefold increase from the US$19 million it earned in the third quarter of last year. It reported sales of US$3.26 billion, up 41 percent from US$2.31 billion in the quarter last year.
In advance of the earnings report on Tuesday, Amazon's stock price gained 10 percent and topped US$100 for the first time since December 1999, closing at US$100.82. In after-hours trading the stock gave up most of those gains, trading around US$90.
concern
Scott Devitt, managing director of Stifel Nicolaus, a financial services firm, said investors might have been worried that Amazon would start to increase its spending next year.
"Expectations got ahead of themselves," Devitt said. "You have a stock that has gone from US$30 to US$100 in a matter of 15 months, and at some point you crossed fair value."
The company's strong results for the quarter can be partly explained by currency fluctuations and by the 2.5 million copies of Harry Potter and the Deathly Hallows that Amazon sold.
But investors and analysts are also encouraged by more enduring trends, like the migration of smaller retailers onto Amazon's network.
"Amazon's third-party business is on fire," said Scot Wingo, chief executive of ChannelAdvisor, which helps smaller retailers sell their wares on the Amazon.com site. "People that dipped their toes in the water with Amazon a year or two ago have really expanded their selection."
Unlike eBay, Amazon does not charge a listing fee for each item sold on the site. Instead it charges only a commission, taking a cut of about 10 to 15 percent cut of each sale. That allows sellers to experiment with all of their merchandise on Amazon and pay only when an item is sold.
Amazon beat Wall Street's quarterly estimates of US$3.14 billion in revenue and its own forecasts of US$3 billion to US$3.175 billion.
Mark Mahaney, the director of Internet research at Citigroup, said investors had generally been pleased by a slowdown in Amazon's investment spending at the same time that margins and revenues soared.
"EBay's margins are flat on the year, Google's are flat to down on the year and Yahoo's margins are flat to down," Mahaney said. "You go to Amazon and revenue growth is more than 30 percent, along with a margin expansion of 25 percent. Compound those two and you get earnings growth this year that is just dramatic."Amazon's investment in its own operations is still considerable: It spent US$181 million on what it calls technology and content development over the last three months. But the rate of that investment is slowing and the investments are starting to yield fruit.
DRM
Last month, the company introduced the Amazon MP3 digital music store to sell tracks without the anti-piracy technology known as digital rights management, or DRM. The music companies EMI and Universal are participating in Amazon's store, making the service a significant competitor to Apple's iTunes service.
In a conference call with analysts, Jeff Bezos, chief executive of Amazon.com, said the company was happy with early results from the store.
"We are getting terrific feedback from customers," he said. "Everybody loves the DRM-free format. Now the onus is on us to continue to convince music labels that this is a good way to sell their music."
This fall, Amazon is also expected to introduce an electronic book device and an online store where users can download e-books.
Another nascent but promising area for Amazon is its Web services business, in which it rents out parts of its computing infrastructure to other Web businesses.
More than making up for those developing businesses is the overall increase in e-commerce sales. The research firm Hitwise reported double-digit increases in traffic to Internet retail sites during the summer.
Amazon got the largest chunk of that traffic, with 11.5 percent of all visitors, followed by Wal-Mart, with 5.4 percent.
Amazon also raised its forecast for this year, saying it expected to take in US$14.3 billion to US$14.6 billion for the year.
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