AP
Amazon.com 3Q Profit Skyrockets
Tuesday October 23, 7:08 pm ET
By Jessica Mintz, AP Technology Writer
Amazon.com 3rd-Quarter Profit More Than Quadruples, but Shares Drop After Hours


SEATTLE (AP) -- Web retailer Amazon.com Inc. said Tuesday that its third-quarter profit more than quadrupled, and its shares topped $100 in regular trading, but the stock fell back toward $90 as concerns over margins overshadowed an otherwise strong quarter.

Earnings for the quarter ended Sept. 30 skyrocketed to $80 million, or 19 cents per share, from $19 million, or 5 cents per share, during the same period last year.

Those results beat the expectations of analysts polled by Thomson Financial, who on average forecast a profit of 18 cents per share.

Revenue climbed 41 percent to $3.26 billion from $2.31 billion in the year-ago quarter. Analysts had predicted $3.14 billion in sales.

Sales on the company's U.S. and Canada sites rose 42 percent in the quarter compared with a year ago, and international sales improved 40 percent. The company said changes in foreign exchange rates throughout the quarter boosted sales by $75 million, accounting for about 3 percent of the overall sales increase.

Books, music, DVDs and other media items contributed 64 percent to Amazon's top line, but sales of electronics, toys, jewelry, clothes and other "soft goods" grew faster.

Sales in the media category rose 27 percent to $2.09 billion in the third quarter. In North America, soft goods sales rose 54 percent compared with the same quarter a year ago.

Financial analysts peppered Amazon executives with questions about margins during their conference call Tuesday.

Chief Financial Officer Tom Szkutak said shipping deals and steep discounts for the 2.5 million copies of "Harry Potter and the Deathly Hallows" that Amazon sold during the quarter hurt margins, as did other lowered prices and changes in the mix of products offered by the retailer.

The company's gross margin slipped from 24.3 percent in the second quarter to 23.4 percent in the third.

Analyst Dan Geiman of McAdams Wright Ragen said Amazon's operating margin, which includes the cost of fulfillment and other expenses, was actually stronger than he expected, at 3.8 percent.

This financial measure looked particularly good in the third quarter compared to the 1.7 percent Amazon reported a year ago because it spent heavily on technology and content in 2006. Current-quarter results won't have the benefit of that comparison.

"I think investors are maybe starting to realize the same level of margin growth may not come about in the fourth quarter of 2007 and into 2008," Geiman said.

He added that Wall Street may have set a higher bar for Amazon in the quarter than was reflected in the official Thomson forecast, adding to the pullback after hours.

"They didn't have the blowout quarter relative to expectations the way they have in the past," the analyst said.

In the conference call, Szkutak said the number of Amazon Prime members -- people who pay $79 up front for a year of free two-day shipping, which the company offers at a loss -- doubled from a year ago. He declined to say how many people use the service.

The CFO said safety scares over toys made in China haven't dampened shoppers' enthusiasm for the category.

"We expect to see a great, record holiday season," helped by toy sales, Szkutak told reporters.

For the crucial holiday shopping quarter, Amazon said it expects sales between $5.1 billion and $5.45 billion. Analysts forecast $5.16 billion.

The company increased its revenue forecast for the fiscal year between $14.26 billion and $14.61 billion, from earlier guidance of $13.80 billion to $14.30 billion. Analysts are looking for $14.19 billion.

For the first three quarters of the year, Amazon's sales rose 36 percent to $9.16 billion from $6.73 billion in the year-ago period. Revenue nearly tripled to $269 million, or 64 cents per share, from $93 million, or 22 cents per share.

Shares of Amazon.com fell $9.30, or 9.3 percent, to $91.52 in after-hours electronic trading, after adding $9.53, or 10.4 percent, to close at $100.82 Tuesday.