AP
International Sales Double Amazon Profit
Wednesday January 30, 6:58 pm ET
By Jessica Mintz, AP Technology Writer
Amazon 4Q Profit Soars but Shares Sink After Hours on Margin in Outlook


SEATTLE (AP) -- Amazon.com Inc. said Wednesday its fourth-quarter profit more than doubled, helped by fast-growing international sales.

The Web retailer also issued better-than-expected sales guidance and appeared unconcerned about a possible recession.

But its shares sank after hours as investors did the math and saw that rising sales wouldn't bring as rich a profit as they'd hoped.

The stock plunged $8.33, or 11 percent, to $65.88 in electronic trading, after ending the day with a small gain at $74.21.

Amazon's earnings in the crucial holiday quarter climbed to $207 million, or 48 cents per share, from $98 million, or 23 cents per share, in the same period last year.

Results matched Wall Street's expectations: Analysts polled by Thomson Financial forecast a profit of 48 cents per share.

Revenue rose 42 percent to $5.67 billion from $3.9 billion in the year-ago quarter, topping analysts' prediction of $5.37 billion in revenue.

The company said changes in foreign exchange rates lifted sales by $195 million.

International sales growth outpaced U.S. sales in the quarter. U.S. and Canada sales rose 40 percent to $3.08 billion, while sales to other countries climbed 46 percent to $2.59 billion.

Sales for Amazon's largest business segment, which includes books, music and movies, grew 33 percent to $3.33 billion worldwide in the quarter.

Electronics and general merchandise revenue rose 58 percent to $2.21 billion.

"This company has just done an unbelievable job," said Tim Boyd, an analyst at American Technology Research, in an interview. "They're obviously just eating eBay's lunch. They're eating every one of their competitors' lunches."

Amazon's gross margin was lower than in the year-ago quarter. In a conference call, Chief Financial Officer Tom Szkutak said its entrance into new product categories eats into profits. That's because Amazon sells at competitive prices even before it has amassed the sales volume and business relationships necessary to command lower wholesale prices.

The retailer's margins also take a hit as the number of people who pay up front for a year of free shipping rises -- and as the mix of products sold on the site shifts.

Items sold by third parties on Amazon's platform -- more profitable for the company than selling its own goods -- rose 1 percentage point to 26 percent.

For all of 2007, Amazon said it earned $1.12 per share on $14.83 billion in sales, more than double the earnings in same period a year earlier, when it posted a profit of 45 cents per share on $10.71 billion in revenue.

Amazon issued stronger revenue forecasts for first-quarter and full-year sales than Wall Street was expecting. In a conference call with reporters, Szkutak repeatedly declined to comment on the troubles facing the U.S. economy or the possibility of a slowdown in consumer spending, saying only that "our business is fine."

For the current quarter, Amazon forecast between $3.95 billion and $4.15 billion in sales. For the full year, it predicted revenue of $18.75 billion and $19.75 billion.

Analysts were predicting $3.92 billion in sales in the first quarter, and $18.25 billion in revenue for the year.

But the company's operating income guidance -- $155 million to $200 million for the quarter, and $785 million to $985 million for the year -- show Amazon plans to spend more and pocket less.

Boyd, the analyst, said the company's cash would likely to go fending off eBay Inc., a competitor for Amazon's third-party seller business. He also said Amazon's digital music business may be losing money in this early phase.

In 2005 and 2006, investors and analysts were similarly unhappy with near-term results as Amazon spent heavily on technology and content. When spending slowed and margins rose, Amazon returned to favor. Now, said Boyd, Amazon is spending again.

"A lot of old Amazon bears are going to be growling tomorrow," he said.