Amazon.com Posts Profit, but It’s Missing Old Magic
Amazon.com Inc. is wishing it could conjure up another “Harry Potter.”
The Internet’s largest retailer posted its fourth consecutive quarterly profit Thursday, but the second-quarter results -- along with a tepid full-year forecast -- came up short of Wall Street’s expectations and its stock tumbled about 4% in after-hours trading.
Amazon blamed the young wizard’s extraordinary popularity in 2003 for a slowdown in the longtime growth of its sales: Amazon sold 1.4 million copies of “Harry Potter and the Order of the Phoenix,” the fifth book in the series, during last year’s second quarter, making this year’s results look weaker by comparison.
Concerns about the slowdown in revenue growth overshadowed the Seattle-based company’s rebound from a steep loss a year earlier largely on the strength of increased shopping on Amazon’s international stores.
Amazon said it earned $76.5 million, or 18 cents a share, contrasted with a loss of $43 million, or 11 cents, in the comparable 2003 period. The results missed analysts’ expectations by a penny a share, the only earnings miss since Amazon posted a wider-than-expected loss in the fourth quarter of 1999, according to Thomson First Call.
Sales rose 26% to $1.39 billion, $50 million shy of Wall Street’s expectations. Without help from the weak dollar, Amazon’s revenue would have dropped by $47 million and its earnings by $6 million, or 2 cents a share, Amazon said.
The company’s shares rose $1.06, or 2.4%, to $45.82 in regular Nasdaq trading before falling as low as $43.87 after hours.
Amazon raised its 2004 sales forecast but warned that its profit margins would narrow. Chief Executive Jeffrey Bezos said Amazon would hire more computer scientists and continue to cut prices to fend off competitors new and old.
“All of which smacks to me of them seeing greater competition from companies they compete with, which may be indicative of traditional retailers doing a better job of delivering through Internet channels,” said David Garrity, an Internet analyst with Caris & Co.
Launched in 1995 as an online bookseller, Amazon now sells such diverse products as beauty supplies, consumer electronics and sporting goods. Yet 75% of sales still come from its “media” business, which includes books, music and movies.
That’s why sluggish sales in that unit worried analysts. In a conference call with Amazon executives, analysts fretted that the media division’s North American sales grew only 9% from a year earlier; they were expecting something like the first-quarter’s 16% growth, more traditional for Amazon.
“Harry Potter” boosted media sales by at least 5 percentage points last year, Chief Financial Officer Tom Szkutak said.
But some analysts didn’t completely buy that as the reason for the slower growth. Mark Rowen of Prudential Equity Group noted that international media sales rose 35% year over year, compared with 62% in the first quarter.
“I might be wrong, but I don’t think you can explain all of it with ‘Harry Potter,’ ” he said.
“It’s hard to know,” Szkutak replied.
Amazon boosted its third-quarter sales forecast to a range of $1.43 billion to $1.53 billion, which would be 26% to 34% growth. Analysts had expected $1.46 billion, and some held out hope that former President Clinton’s bestselling memoir might help Amazon regain its magic.
