Amazon.com aims to turn fourth-quarter profit
By Allison Linn
Associated Press
SEATTLE — Amazon.com has made many groundbreaking moves in the scant six years it's been in business.
Now it's going for another first — making money.
The world's largest Internet retailer has said it aims to turn a pro forma operating profit in the fourth quarter ended Dec. 31. It reports earnings Tuesday.
That measure of profit excludes many expenses and is a long way away from true profitability — analysts are still predicting the company will report a net loss of millions of dollars, and Amazon has not said when it expects to turn a net profit.
But Amazon executives and financial experts still say that meeting that pro forma operating profit target is critical.
"Investors are looking for some sort of proof that the economics of e-retailing or e-commerce make sense, and this is the milestone quarter for them," said Jeetil Patel, an analyst with Deutsche Banc Alex. Brown in San Francisco.
It's also an important test of Amazon executives' credibility with Wall Street, said hedge fund manager Scott Reamer of Union Tree Capital Research in Denver.
"It's a psychological milestone for the Street if only because it was the one achievable thing that management set out to do earlier this year," Reamer said.
But, Reamer cautions, "It's not a real profit and they've got a lot of debt. There's a long way from here and actual reported earnings."
Reamer thinks Amazon will likely meet the goal; Patel is confident the company will outdo itself.
Earlier this month, Patel said he thought Amazon would actually do better than originally expected in the fourth quarter, based on faster-than-expected growth in the company's international divisions and strong holiday sales. He is predicting a $15 million pro forma operating profit.
Amazon has not given specific financial guidance on its holiday sales, although the company warned in its third quarter earnings call that it expected sales would be flat or grow by at most 10 percent in the fourth quarter, compared to the same period last year.
Nevertheless, analysts say the world's largest online retailer couldn't help but benefit from strong overall online sales. Amazon was the seventh most visited Web property on the Internet in December, according to figures released Friday by Jupiter Media Metrix.
"The holiday season definitely benefited (Amazon) overall, given that they are one of the leading e-commerce sites out there," Patel said.
Indeed, most analysts reported that online sales were up considerably in 2001, despite the general economic downturn.
This week, the analyst group comScore estimated that sales at domestic online retailers reached $33.7 billion this year, excluding online travel. That's a 20 percent increase over 2000 sales.
ComScore, based in Reston, Va., said those numbers were boosted considerably by strong holiday sales. During the weekend of Dec. 15-16 alone, the firm estimates that people spent $341.1 million online.
Patel also praises Amazon for taking strong steps to cut extra expenses, something it vowed to do last year when it cut 1,300 workers and announced the profitability target.
While most analysts believe the company will meet its fourth-quarter profit target, some have been more skeptical about Amazon's long-term prospects.
They've noted that Amazon has seen a remarkable slowdown in sales in its core business of books, music and movies. Sales in that sector fell by 12 percent in the third quarter compared with the same period last year.
While the company has grown in other areas, such as used items sales and partnerships with other retailers like Borders and Target, analysts warn that the company will still be hurt if it cannot keep its core business growing. Reamer estimates that books, music and movies accounts for more than 50 percent of Amazon's revenue.
"You can't have that big a piece of your revenue pie declining that rapidly and not feel that concern about it," he said.
