Asset sale boosts Amazon profit, shares rise : US Business

By Alexandria Sage

SAN FRANCISCO (Reuters) - Amazon.com Inc's quarterly profit doubled and beat expectations, helped by an asset sale gain, and 41 percent sales growth indicated to Wall Street that cost-conscious shoppers are heading online to save.

Amazon shares zig-zagged in after-hours trade on Wednesday before trading 8 percent higher later in the evening.

Amazon's relatively strong performance in a tough economic environment may have excited investors, along with the benefits for the company from shoppers going online to save on gasoline, said Global Crown Capital analyst Martin Pyykkonen.

Investors may also have been cheered by positive comments from Chief Executive Jeff Bezos about the Kindle, Amazon's digital book reader, he said.

Bezos said 10 percent or more of the 140,000-odd titles available for the Kindle were being sold for electronic reading rather than in book form. The percentage was in the low double-digits, he said.

Recent disappointing results from rival eBay Inc and tech giants Apple Inc and Google Inc have worried investors, though they seemed unfazed by Amazon nudging lower the midpoint of its 2008 operating income target range.

The company posted second-quarter net profit of $158 million, or 37 cents per share, compared with $78 million, or 19 cents per share, a year earlier. Revenue in the quarter, which is seasonally the slowest, rose to $4.06 billion.

That beat analysts' average revenue forecast of $3.95 billion, according to Reuters Estimates. The profit comfortably topped the average Wall Street target of 26 cents per share, but excluding the European sale the beat was just 2 cents.

WINDFALL FROM SALE

The $53 million non-cash gain was from the sale of Amazon's European DVD rental business and was an unexpected boost to the operating profit margin, as well as earnings.

Seattle-based Amazon, which has been lowering prices on many goods to spur purchases during the U.S. economic downturn, reported a rise in operating profit margin to 5.3 percent of total sales from 4.0 percent a year ago.

Bernstein analyst Jeff Lindsay said Amazon also benefited from the weak dollar's impact on international sales, which grew 47 percent. Excluding the weak dollar boost, international sales rose 34 percent -- similar to U.S. growth of 35 percent.

Amazon said it sees third-quarter net sales of $4.2 billion to $4.425 billion, or growth of 29 percent to 36 percent.

Operating income is expected to range between $115 million and $160 million, representing a decline of 6 percent to growth of 31 percent, and including $80 million in stock-based compensation and amortization of intangible assets.

Amazon said it now expects 2008 net sales of $19.35 billion to $20.10 billion versus $19.1 billion to $20.0 billion before. Wall Street has been expecting $19.6 billion, on average.

Operating income is now expected to be between $745 million and $920 million versus $740 million to $940 million before, lowering the midpoint to $832.5 million from $840.0 million.

Valued at 45 times projected 2008 earnings, Amazon shares trade well above many Internet stocks as well as traditional retailers with big online divisions like Wal-Mart Stores Inc , Target Corp and Best Buy Co Inc , at 17, 13 and 12 times projected earnings, respectively.

"Good luck to you if you want to buy it here, because it's pretty rich," Pyykkonen said, noting Amazon gave no indication that margins would expand enough to justify such a multiple.

Amazon shares gained nearly 4 percent to $70.54 in regular Wednesday trade before rising in extended trade to $76.80.

(Additional reporting by Jim Christie and Anupreeta Das; Editing by Braden Reddall)

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