Amazon's Good News

Amazon this morning said first-quarter results would be above expectations, citing strong sales of electronics. Today's news was only a pre-announcement, though the company did reaffirm guidance and still expects a pro forma profit by the fourth quarter.

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By Mike Trigg (TMF Tonto)
April 9, 2001

Internet retailer Amazon (Nasdaq: AMZN) said this morning first-quarter results would be above expectations, citing strong sales of electronics. Amazon expects a pro forma loss of $0.22 per share, compared to a loss of $0.35 per share in the year-ago quarter, and above the Street's expectation of a $0.30 per share loss. Investors are reacting positively to the good news with shares up more than 30%.

Amazon reported a net loss from operations of $150 million, compared to $308.4 million in the year-ago period. Including charges for job cuts and cost-saving measures, Amazon had a loss of $255 million. The company said in January it was lowering costs by cutting 1,300 jobs, or 15% of its staff. It also said its Seattle distribution center would operate on a seasonal basis and that it was closing one of its customer service centers.

Sales were $695 million, increasing 21% over the year-ago period and above the Street's estimate of $670 million. Gross margins are expected to be 25%, compared to 22% in the year-ago quarter. That's good news and in line with full-year guidance of 25%. Cash and marketable securities will be $640 million, and the company still expects that figure to be $900 million at year-end. 

"We'd like to again thank our customers for an excellent quarter," said CEO Jeff Bezos. "For the fifth consecutive quarter we saw substantial improvement in our operations and bottom-line performance. Electronics demonstrated especially strong growth and improvements."

While today's announcement was mostly good news, Amazon said books, music, and video gross profit will increase 30% on very slight sales growth. Slight sales growth is cause for concern because books, music, and video sales are Amazon's core business. That this business continues to slow -- growing revenue a mere 11% last year -- underscores the importance of Amazon's new ventures to drive growth.

The notion of trimming costs to achieve profitability is a central theme of today's business environment, and some investors have asserted that the company has sacrificed growth. While that may in part be true, broader economic issues shaping consumer spending is also at play, and in some cases Amazon's cost-cutting efforts simply represent trimming unnecessary fat.   

There isn't much more to know because today's news was only a pre-announcement. While Amazon's cash position looks fine, information regarding its payables won't be available until it reports full results April 24. The company also reaffirmed guidance today, and still expects a pro forma profit by the fourth quarter. Of course, that doesn't mean the company will be announcing a net profit, as pro forma figures exclude many of the costs of doing business. Amazon also still has about $2.1 billion in long-term debt that requires hefty interest payments.

Taking a step back from today's news, Amazon has a large enough brand and sufficient traffic to keep marching toward profitability. The slowing economy does pose significant challenges, but today's news bodes well. It's worth noting that Amazon gave a conservative growth outlook last quarter because of the economic slowdown, but that wasn't surprising given the downward trend of online spending.

Mike Trigg recently purchased electronics on Amazon. To see his holdings, view his profile. The Motley Fool is investors writing for investors.

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