Amazon Shares Surge on Strong Results

SEATTLE – Amazon.com's (AMZN) shares surged more than 11 percent Wednesday after the Internet retailer reported brisk sales and a jump in operating profit for the latest quarter.

Its shares rose $4.27, or 11.3 percent, to $42.01 on the Nasdaq Stock Market (search). That put them near the upper end of their 52-week range of $30.60 to $45.68.

In a report after the markets closed Tuesday, Amazon.com said its profit slumped 32 percent to $52 million, or 12 cents a share, for the three months ending June 30 from $76 million, or 18 cents a share, a year earlier.

The decline reflected a $56 million income tax expense, up from $5 million in the same period last year.

Overall operating income rose 21 percent, however, and sales rose 26 percent to $1.75 billion from $1.39 billion last year.

Analysts polled by Thomson Financial were expecting earnings of 10 cents a share on revenue of $1.73 billion. Amazon.com declined to break out earnings figures that could be compared directly with analysts' expectations.

The company's gross profit — net sales minus Amazon.com's cost of buying products — rose to $450 million, up from $341 million at this time last year and about $35 million more than analysts had predicted.

Scott Devitt, an analyst with Legg Mason Wood Walker, pointed to strong sales from independent merchants hawking their wares on Amazon.com.

"Third-party sales were very strong," Devitt said. "That, in my view, is what generated so much upside to the gross-profit numbers."

Amazon.com's chief financial officer, Tom Szkutak, said third-party sales accounted for 28 percent of Amazon.com's total items sold — up from 24 percent at this time last year.

The company didn't disclose how much money third-party sales brought in, or any financial details on the Amazon Prime (search) service it launched in February, which offers unlimited free two-day shipping with a $79 annual fee.

Szkutak said the company is pleased with what it's seen so far, noting that Amazon Prime customers have done heavy shopping for electronics, tools, kitchen supplies and health and personal care products.

"Though expensive for the company, Amazon Prime creates a premium experience for customers who join, and as a result we hope they'll purchase more from us in the long term," Szkutak said.

Safa Rashtchy, an analyst with Piper Jaffray, said he's troubled Amazon.com remains secretive about those and other numbers.

"Amazon is becoming even more of a black box," Rashtchy said. "We don't really have a clear idea of where the upside came from, which would help us determine if it will continue or not."

Amazon.com doesn't break out how much it costs the company to offer free shipping for orders of $25 or more. It doesn't say how much money it makes from books compared to music and videos, and lumps electronics in with "other general merchandise."

Sales in the United States and Canada were $960 million for the quarter, up 21 percent from a year ago. International sales rose to $793 million, a 33 percent increase from the second quarter of 2004.

Electronics and other general merchandise had a strong quarter, posting worldwide sales of $456 million, up 40 percent from last year. Sales of books, CDs, DVDs and other "media" products were $1.2 billion, a 20 percent increase from last year.

Overall operating income rose to $104 million in the latest quarter, up 21 percent from $86 million in the second quarter of 2004.

Amazon said it expects sales of $1.76 billion to $1.91 billion in the quarter that ends Sept. 30, an increase of 20 percent to 31 percent from a year earlier. The company predicts operating income for the quarter to range from $60 million to $90 million.

For the full fiscal year, the company projects net sales of $8.28 billion to $8.68 billion, which would be 20 percent to 25 percent higher than sales in fiscal 2004. Amazon.com expects operating income of $415 million to $515 million.

Amazon.com started out as a virtual book store 10 years ago, and is now one of the world's largest e-tailers, selling everything from loose diamonds to lobsters.