Online shoppers boost Amazon profit

Author: Reuters

Amazon shares jumped 8 per cent, after zig-zagging in early extended trade
because an unanticipated gain on an asset sale initially obscured the
underlying earnings performance.

“The numbers are good, very solid,” Stifel Nicolaus analyst Scott Devitt said.
“It shows the company is performing very well relative to the industry.”

The company said it benefited from shoppers going online to save on gasoline.
Chief Executive Jeff Bezos also said Amazon’s Kindle digital book reader was
gaining readers, while the number of independent sellers offering goods on
Amazon’s site continued to grow.

Recent disappointing results from rival eBay Inc and tech giants Apple Inc and
Google Inc have worried investors, who seemed unfazed by Amazon nudging
lower the midpoint of its 2008 operating income target range.

The company posted second-quarter net profit of $158 million, or 37 cents per
share, compared with $78 million, or 19 cents per share, a year earlier.
Revenue in the quarter, which is seasonally the slowest, rose to $4.06

That beat analysts’ average revenue forecast of $3.95 billion, according to
Reuters Estimates. The profit comfortably topped the average Wall Street
target of 26 cents per share, though excluding the European sale the beat
was just 2 cents.

The $53 million non-cash gain was from the sale of Amazon’s European DVD
rental business and was an unexpected boost to the operating profit margin,
as well as earnings.

Seattle-based Amazon, despite lowering prices on many goods to spur purchases
during the U.S. economic downturn, reported a rise in operating profit
margin to 5.3 per cent of total sales from 4.0 per cent a year ago.

Amazon also benefited from the weak dollar’s impact on international sales,
which grew 47 per cent. Excluding the weak dollar boost, international sales
rose 34 per cent – similar to U.S. growth of 35 per cent.

Amazon said it sees third-quarter net sales of $4.2 billion to $4.425 billion,
or growth of 29 per cent to 36 per cent.

Operating income is expected to range between $115 million and $160 million,
representing a decline of 6 per cent to growth of 31 per cent, and including
$80 million in stock-based compensation and amortization of intangible

Amazon said it now expects 2008 net sales of $19.35 billion to $20.10 billion
versus $19.1 billion to $20.0 billion before. Wall Street has been expecting
$19.6 billion, on average.

Operating income is now expected to be between $745 million and $920 million
versus $740 million to $940 million before, lowering the midpoint to $832.5
million from $840.0 million.

Amazon, which has been beefing up its digital offerings, including a new
streaming video service, does not reveal Kindle sales. But Bezos said 10 per
cent or more of the 140,000 titles available for Kindles, or a
low-double-digit per centage, were being sold for electronic reading rather
than in book form.

Valued at 45 times projected 2008 earnings, Amazon shares trade well above
many Internet stocks as well as traditional retailers with big online
divisions like Wal-Mart Stores Inc, Target Corp and Best Buy Co Inc, at 17,
13 and 12 times projected earnings, respectively.

“Good luck to you if you want to buy it here, because it’s pretty rich,”
Global Crown Capital analyst Martin Pyykkonen said, noting Amazon gave no
indication that margins would expand enough to justify such a multiple.

Amazon shares gained nearly 4 per cent to $70.54 in regular Wednesday trade
before rising in extended trade to $76.80.

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