Advertisement Posts Profit, Cites Hefty Foreign Growth

Times Staff Writer

The revitalized Internet sector continued on its roll Thursday as Inc. said it swung to a hefty first-quarter profit and raised its 2004 forecasts, though not as much as some Wall Street bulls had anticipated.

The online retailer said discounts, free-shipping promotions and an expansion into new product categories helped its U.S. business make solid gains and pushed its foreign sales to new heights.

Amazon, based in Seattle, earned $111 million, or 26 cents a share, in the first three months of the year, far exceeding analysts’ expectations. The company had lost $10.1 million, or 3 cents a share, in the same period last year.

Sales were $1.53 billion, up 41% year over year. Without the benefit of a weak dollar, which added $87 million to the top line, revenue would have risen 33%.


With its third consecutive quarterly profit after years of losses, Amazon has begun chipping away at the massive debt it accumulated to build the world’s largest Internet-only store and expand into international markets. Using methods that Wall Street long criticized -- including free shipping and low margins -- analysts said Amazon had largely put to rest questions about its viability.

“They’ve succeeded, even with a strategy that many Wall Street analysts are skeptical of,” said Joe Bonner, an analyst at Argus Research. “They’re a survivor.”

But some analysts said Amazon’s results, although strong, looked somewhat mediocre compared with the profits reported this month by fellow Internet heavyweights EBay Inc. and Yahoo Inc.

Investors have been buying shares of all three companies since the fall in anticipation of an Internet run-up, causing Yahoo, EBay, and other dot-com stocks to reach 52-week highs Thursday.


“EBay and Yahoo have delivered on all the promises and even raised expectations,” said Martin Pyykkonen, an analyst at Janco Partners. But, he said, “Amazon really hasn’t done that.”

He pointed to Amazon’s free cash flow, which remained flat compared with the same period last year, and its 2004 sales forecast of as much as $6.85 billion, which was almost $80 million below the most bullish Wall Street estimate.

Amazon shares gained $3.14, or 7%, to $48.86 in regular Nasdaq trading before the earnings release but gave back some of those gains after hours by falling to $47.50.

Still, the company made headway on its mission to attract new online shoppers, largely helped by international expansion. For the first time, half of Amazon’s sales derived from goods shipped to customers outside the U.S.

Sales in the U.S. and Canada rose 20% to $847 million. Revenue from its international online stores in Britain, Germany, France and Japan rocketed 80% to $684 million.

Amazon’s media business, which includes CDs, DVDs and books, grew 16% in North America and 62% internationally, with overseas sales almost matching domestic sales. Revenue from all other merchandise, including electronics, rose 33% in North America and 368% internationally.

Fears on Wall Street that Amazon would be crushed under its debt have largely gone away. The company borrowed heavily and posted losses for years after its 1995 launch, but it seems to have turned a corner.

The company improved its cash position in the quarter, to $768.6 million from $495.8 million a year before. It paid off $150 million in debt during the quarter, lowering its long-term debt to $1.78 billion, from $2.3 billion on March 31, 2003.


“The debt as albatross issue is behind us,” said Mark Mahaney, an analyst at American Technology Research.

“The debt that Amazon has won’t crush the company. It’s at a manageable level and is slowly and surely coming down over time,” he said.

Amazon continued to expand into new markets Thursday, launching a jewelry store.