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Amazon earnings miss the mark
No. 1 online retailer's profits come in well below Wall Street forecasts; stock tumbles.
February 3, 2005: 9:10 AM EST

NEW YORK (CNN/Money) - Amazon.com Inc. posted a fourth-quarter profit on Wednesday that fell short of Wall Street estimates, but it logged better-than-expected sales for the period.

The Web's largest retailer reported fourth-quarter earnings excluding one-time items of $149 million, or 35 cents a share, up from $125 million, or 29 cents a share, a year earlier.

Analysts had forecast a profit of 40 cents a share on sales of $2.4 billion, according to Thomson Financial.

Sales jumped 31 percent to $2.54 billion, slightly above the forecasts.

The company's international division reported that sales rose 43 percent from a year earlier, while sales in North America rose 22 percent.

Shares of Amazon (Research) tumbled close to 15 percent in after-hours trading on INET after falling about 1.5 percent in regular trading on Nasdaq. Amazon shares

Including stock-compensation expenses, restructuring and other charges, Amazon posted net profit of $347 million, or 82 cents a share, for the quarter, compared with profit of with $73 million, or 17 cents a share, a year earlier.

Seattle-based Amazon said it expects sales of between $1.8 billion and $1.95 billion for the first quarter, which would be up by between 18 percent and 27 percent from a year earlier. That compares with analysts' average forecasts of $1.8 billion for the first quarter, according to Thomson Financial.

Though Amazon did not give earnings-per-share guidance, it said it expects operating income of $80 million to $110 million for the first quarter. Analysts forecast profit of 27 cents a share for the period.

Amazon said sales for full-year 2005 are expected to come in at $8.05 billion to $8.65 billion. The consensus estimate is for $8.1 billion. The company said operating income for full-year 2005 is expected to be between $385 million and $510 million.

Wall Street estimates are for full-year profit of $1.21 a share.

"Amazon had a relatively strong topline performance but misses on the bottomline," said Dan Geiman, analyst with McAdams Wright Ragen.

Geiman said the disappointing profit performance was somewhat surprising given Amazon's blockbuster holiday season.

"The net expenses in the quarter were higher than expected. Amazon is also guiding lower for operating income in 2005. I suppose that some of the expenses that they incurred in 2004 will be bleeding into this year."

Amazon also announced that it would begin offering its customers the option of paying a flat annual fee of $79 for unlimited two-day shipping with no minimum purchase required. The deal also allows customers one-day overnight shipping for $3.99 an item.

During a conference call with analysts, Amazon CEO Jeff Bezos said the new "all-you-can-eat express shipping" option is designed to improve customer service, although it's expected to increase expenses in the short term. "But it will drive incremental demand in the long term," Bezos said.

Industry watchers say Amazon is feeling the pressure to expand market share as it faces stiffer competition both from traditional brick-and-mortar retailers such as Wal-Mart and Target, which are aggressively pursuing the online channel, and from well-funded upstarts such as Overstock.com and Smartbargains.com, which continue to nibble away at Amazon's market share.

"Amazon is really getting hit from both sides," said Scott Devitt, analyst with Legg Mason Wood Walker. "The business environment, especially in the United States, is very, very competitive."

Amazon sees total capital expenditure in 2005 to be about $175 million, up from $89 million last year. The company expects investment in software development to account for about half of that amount.  Top of page

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