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Amazon turns first net profit

By Scott Hillis, Reuters, 01/22/02

SEATTLE — Amazon.com Inc. (AMZN.O) on Tuesday posted its first-ever net profit as strong turnout from holiday shoppers fueled a 15 percent rise in sales and helped the online superstore trounce even the most optimistic expectations.

The Seattle-based retailer, which has lost nearly $3 billion since it went public in 1997, said its fourth quarter net profit -- including charges like acquisition expenses, stock compensation and interest payments on debt -- was $5 million, or 1 cent a share, compared to a loss of $545 million, or $1.53 a share a year earlier.

Amazon shares soared 22 percent in early Nasdaq trading, to $12.45 from $10.16 last Friday. Volume was very heavy at 28 million shares in little more than an hour, compared to about 11 million on a typical day. The stock has a 52-week trading range of $5.51 to $22.375. The net profit also included a $16 million currency gain related to euro-denominated debt.

Revenues grew to a record $1.12 billion from $972 million a year earlier, growth of 15 percent that was three times faster than what most Wall Street analysts had expected.

"These were overwhelmingly strong results, which indicates they are now a global e-commerce player," Deutsche Bank Alex. Brown analyst Jeetil Patel said. "The model has now been fine-tuned to the point we are seeing a balance of growth and profitability."

The Seattle-based company also posted a pro forma net profit -- a figure which includes interest but excludes other costs and has been the figure watched by Wall Street analysts -- of $35 million, or 9 cents a share, compared to a loss of $90 million, or 25 cents a share last year and beating analyst estimates of between 4 and 8 cents.

"We nailed the quarter from a financial perspective," Chief Financial Officer Warren Jenson told reporters on a conference call. "We exceeded expectations on virtually every line of our income statement."

Better efficiency also aided Amazon, which last year strove to cut costs and boost productivity as it changed its informal corporate mantra from "get big fast" to "get the crap out."

Jenson said inventory turns, a key retailing metric that shows how fast a company can sell goods, rose to an annualized rate of 25, up nearly 40 percent from 18 a year earlier. Marketing expense was also down 27 percent while fulfillment costs fell 17 percent.

LOWER PRICES EQUAL HIGHER PROFITS?

Amazon had endured continual fire from many investors and analysts for its mounting losses and practice of focusing not on a net profit, but a "pro forma operating" figure that excludes many costs.

The net profit, announced hours before the opening of U.S. markets, surprised Wall Street because Chief Executive Jeff Bezos had promised only to break even on a pro forma operating basis. On that basis, Amazon said it turned a $59 million profit, compared with a $60 million loss a year earlier.

"These are important milestones," Morgan Stanley analyst Mary Meeker told Bezos on a conference call, adding a jibe, "You certainly didn't make it easy!"

Amazon also gave guidance for its current, first quarter, saying it expected sales to grow between 11 and 18 percent to between $775 million and $825 million, with a pro forma operating loss of between break even and $16 million.

Full-year revenues were seen growing by about 10 percent, with pro forma income from operations hitting about $30 million.

Moreover, Bezos said Amazon's new goal was to generate operating cash flow for the full year. He said there was a chance the company could generate free cash flow, which accounts for capital expenses.

"This objective will be difficult to achieve, possibly even more difficult than our 2001 objective, and as we said a year ago, there are no guarantees," Bezos told analysts.

Amazon had been expected to lose between 7 and 12 cents a share on revenues of about $747 million for the first quarter. For all 2002, it was seen losing between 23 and 49 cents a share, with sales of $3.36 billion, according to tracking firm Thomson Financial/First Call.

Bezos also made clear Amazon's strategy would be to try to pass savings to consumers in the form of lower prices. Amazon will now offer free shipping on orders over $99, a tactic Bezos admitted would be costly but one that would be essential to winning new buyers.

"We see there may be a whole new pool of customers who would be appropriate Amazon customers if we could offer a new class of shipping that would be free," Bezos said. "The thing that held us back in the past was the economics."

-- Anonymous, January 22, 2002