Revenue rises but profit slumps at Amazon

25-10-2006

by Ciara O'Brien

Amazon.com reported a mixed third quarter, with net sales up 24 percent year on year and net income falling by around 37 percent.

Profits at the internet giant amounted to USD19 million for the third quarter, compared to previous year's net income figure of USD30 million. Earnings per share for the quarter to the end of September came to USD0.05 compared to USD0.07 in the year-ago quarter.

Meanwhile, net sales reached USD2.31 billion during the quarter, a rise of 24 percent on the USD1.86 billion from the same quarter a year earlier.

Operating income fell 28 percent to USD40 million, compared to USD55 million in the same period a year before. This decline was mainly attributed to increased investment in technology and website content. However, the third quarter 2005 operating income figures included USD40 million relating to a patent litigation settlement.

"We're pleased with the strong revenue growth and rapid adoption of Amazon Prime," said Jeff Bezos, founder and CEO of Amazon.com.

Amazon Prime is Amazon.com's membership program, which was established in February 2005. This allows members to take advantage of unlimited express two-day shipping, regardless of the purchase amount, for a flat membership fee of USD79 per year.

"We look forward to seeing significant sequential improvement in operating leverage this Q4, even as we continue to invest in many initiatives including new retail categories, seller platforms, web services, and digital," said Bezos.

Geographically, North America segment sales grew 21 percent year on year to USD1.26 billion, while international segment sales, including the UK, Germany, Japan, France and China, reached USD1.05 billion, a 29 percent rise on 2005.

The company introduced a number of new business segments during the quarter, including Amazon Unbox, a digital video download service with thousands of television shows, movies and other video content; and Amazon Elastic Compute Cloud (Amazon EC2), an Amazon Web Services venture that provides resizable computing capacity. Amazon also announced its new car parts and accessories store on www.amazon.com.

Looking ahead to the fourth quarter Amazon is expecting sales to rise by some 22 percent to 33 percent on last year's figures, to between USD3.625 billion and USD3.950 billion. Operating income is predicted to be between USD145 million and USD235 million.