Amazon beats, warns

January 30, 2001: 6:23 p.m. ET

Online retailer tops 4Q forecast but sees revenue growth slowing

NEW YORK (CNNfn) - Amazon.com on Tuesday reported a fourth-quarter loss that was slightly smaller than Wall Street's expectations and said it will lay off 1,300 workers and take a $150 million charge against earnings in the first half of the year.

The leading online retailer also said it expects to report an operating profit in the fourth quarter of 2001, but warned that sales for all of 2001 will fall short of Wall Street's expectations.

After the close of trading, Amazon reported an operating loss of 25 cents per share during the quarter ended Dec. 31. That's less than half the 55 cents per share Amazon lost during the fourth quarter in 1999 and a penny better than the 26 cents-per-share loss analysts polled by earnings tracker First Call had expected the company to post.

Fourth quarter sales rose 44 percent to $972 million. The sales were below the $994.1 million analysts had expected, according to the First Call survey but in line with what the company told the Street to expect when it released preliminary sales, gross profit and operating margin results earlier this month.

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When it pre-announced, Amazon said it expected to report fourth-quarter sales "exceeding $960 million," which is near the low end of the $950 million to $1.05 billion in revenue executives said they were aiming for at the start of the quarter.

Accounting for one-time charges and gains, Amazon's fourth-quarter net loss was $545.1 million, or $1.53 per share.

Looking ahead to 2001, Amazon ratcheted down its revenue forecast, saying it expects annual sales growth between 20 percent and 30 percent.

In October, Amazon had told the Street to expect revenue of $4 billion in 2001, suggesting a near 45 percent increase over the $2.76 billion in sales it reported for all of 2000.

Amazon (AMZN: Research, Estimates) shares fell $1.19, or 5.9 percent, to $18.94 in Nasdaq trade ahead of the earnings announcement. They fell to $17.94 in after-hours trade.

The Seattle-based company's stock has fallen more than 79 percent over the past year from a high of $91.50 last winter. Earlier this month, after the company's pre-announcement, several analysts downgraded their ratings on Amazon's shares, citing concerns about its near-term prospects for revenue growth.

Indeed, Amazon said Tuesday that it does expect to post an operating profit in the fourth quarter of this year.

"Over the past year, our U.S. pro forma operating loss decreased from 24 percent of net sales in the fourth quarter of 1999 to less than 2 percent in the fourth quarter of 2000," Warren Jenson, Amazon's chief financial officer, said in a teleconference Tuesday evening.

"While the strength of consumer spending remains uncertain, and there are no guarantees, we expect Amazon as a whole to reach operating profitability in the fourth quarter of this year," he said.

"We have for five years now declined to predict when Amazon.com might be profitable ... and we are finally answering that question," Amazon's chief executive Jeff Bezos told CNN's Moneyline.

As part of its efforts to turn a profit by the end of the year, Amazon plans to lay off roughly 15 percent of its work force and consolidate its distribution and customer service center network, resulting in the closure of a distribution center in McDonough, Ga., and a customer service center in Seattle.

A unit of the Communications Workers of America, WashTech, had been attempting to unionize the customer-service center that is slated for closure.

WashTech Spokesman Marcus Courtney said in a conference call late Tuesday employees were "shocked and surprised" and the labor organization will demand an investigation into why the company chose to fire its most experienced customer service workers.

"Serious red flags were raised about the fact that the only customer service facility eliminated was the one trying to organize in a very anti-union company," Courtney said.

In connection with the restructuring, Amazon said it will take a charge against earnings of more than $150 million in the first half of 2001.

"No company enjoys making such a decision, and it's always difficult and painful" said Bezos. "But it was clearly the right business decision for us as we pursue making this into a profitable company."

"We did this in a very careful and thoughtful way, and in fact our customer service and customer experience is going to be better than ever," he told Moneyline.

Looking ahead to the first quarter, Jenson said Amazon's revenue should be between $650 million and $700 million. That compares with analysts' most recent forecasts for first-quarter sales of about $806.7 million.

Amazon's gross margin should be between 21 percent and 23 percent of sales in the first quarter. The company's first-quarter operating loss is expected to be between 10 percent and 13 percent of sales, Jenson said.

The company finished 2000 with $1.1 billion in cash, and Jenson stressed that Amazon's is in no danger of running out of cash. Last summer, the company's cash position was questioned after a credit analyst raised a red flag on its creditworthiness and its revenue growth potential.

"With respect to cash, I'd like to make one point," Jenson said. "Unless we choose to raise cash to further strengthen our balance sheet or for strategic flexibility, we have no reason to do so."

At the same time, however, Amazon finished the year with $2.1 billion in long-term debt, compared with the $1.5 billion in 1999.

Jenson said Amazon's cash and marketable securities are expected to top $650 million as of March 31, 2001, which includes up to $50 million of cash outflow in connection with the restructuring.

For all of 2001, Jenson said the company expects to have over $900 million in cash and marketable securities. The company expects to log an operating loss in 2001 that is between 4 percent and 7 percent of sales.