Amazon net jumps on strong U.S. sales, stock zooms
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By Alexandria SageLOS ANGELES (Reuters) - Amazon.com Inc. posted quarterly net profit on Tuesday that more than tripled, surprising Wall Street as U.S. sales jumped and the company raised its 2007 sales and operating earnings outlook, sending shares up more than 20 percent."It's an amazing performance," said Bernstein Research analyst Jeffrey Lindsay. "A lot of it (growth) seems to have come in the United States, which is particularly surprising since that's considered Amazon's most mature market."Profit margins widened in a good sign for investors concerned that the Web retailer in recent years has focused on sales growth at the expense of earnings.Amazon shares already had surged 55 percent since first-quarter earnings in April showed improved profit margins and pared-back spending. The stock has more than doubled in the last year.Net income in the second quarter rose to $78 million, or 19 cents per share, compared with $22 million, or 5 cents a share, a year earlier. Revenue rose 35 percent to $2.89 billion in the second quarter while North American net sales rose 38 percent, representing the highest growth in six years for that region.Earnings of 19 cents per share topped the Wall Street target of 16 cents, while revenue also beat the $2.8 billion average expectation, according to Reuters Estimates.Chief Financial Officer Tom Szkutak attributed part of the U.S. sales growth to Amazon Prime, a discount shipping program that charges $79 annually for unlimited two-day shipping."Subscribers are increasing, customers are buying more, it's becoming a more meaningful part of our overall units. It's certainly impacting the growth you are seeing this quarter," Szkutak told reporters during a conference call.Third-party business represented 30 percent of worldwide sales in the quarter, Amazon said. With these sales, Amazon takes a transaction commission but avoids inventory and fulfillment issues, thereby increasing profit margins."We think this model of having us as a seller as well as third party is very important for customers and also works for us financially as well," said Szkutak. "It should be a meaningful part of our business moving forward."Operating profit margins, a source of much worry on Wall Street in recent years due to high investment spending, came in at 4 percent of worldwide sales in the quarter, well above the 2.2 percent seen a year earlier, when spending on technology and content was significantly higher.RAISING FULL-YEAR SALES FORECASTFor the third quarter, the company said it expects net sales in a range of $3.0 billion to $3.18 billion, with operating income in a range of $75 million to $110 million.Analysts, on average, have been expecting third-quarter revenue of $3.01 billion, according to Reuters Estimates.Amazon raised its full-year sales forecast to a range of $13.8 billion to $14.3 billion. Previously, the company said it expected a range of $13.4 billion to $14.0 billion. Wall Street, on average, has been expecting revenue of $13.86 billion, according to Reuters Estimates.Operating income for the full-year is now expected to range between $540 million and $640 million, well above an earlier estimate of $463 million to $593 million.But one analyst said that the implied outlook for the fourth quarter, which includes the December holidays, showed sales growth outstripping operating income."What's driving the stock wild is positive operating leverage," said analyst David Garrity of Dinosaur Securities. "What these numbers would appear to indicate ... is that this positive operating leverage dynamic may only have a fairly short runway."But the company could still raise its outlook for the fiscal year and fourth quarter, he added.Amazon shares rose 20.3 percent to $83.28 from a close of $69.25 on Nasdaq.The company is valued well above major Internet players as well as brick-and-mortar retailers. Amazon shares, as of Monday's close, traded at 52 times 2008 expected earnings, compared with 21 times at eBay Inc. , 46 times at Yahoo Inc. and 14 times at Wal-Mart Stores Inc. .
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