Amazon surges on first-quarter outlook

E-commerce giant Amazon posts smaller-than-expected losses
Written by Margaret Kane, Contributor

Shares of Amazon.com soared 40 percent after the company said it would post a smaller-than-expected loss for the first quarter amid strong electronics sales.

Amazon was up $3.38 to $11.75 in morning trading.

The online retailer said Monday it would post a pro forma loss of slightly less than $50m, or about 22 cents per share. That's smaller than the 30 cents a share loss analysts were expecting, according to First Call, and down from the 35 cents per share loss it posted in the year-ago quarter.

Amazon said it should see net sales of more than $695m, compared with the $669.58m predicted by a First Call's survey of analysts. In the year-ago quarter, the company posted revenues of $574m.

Amazon also reaffirmed earlier guidance for 2001, which had included predictions of a pro forma profit in the fourth quarter.

"I think it caught everyone by surprise," said analyst Tim Albright at Salomon Smith Barney.

Albright said the news could mean that consumer-based businesses, traditionally hard hit in tough economic times, could fare slightly better than expected this time around.

"What this says to me broadly is that consumers are less volatile [than] IT managers," he said. "Companies that are just consumer-based may be less exposed to big volatile swings in revenue than companies dependent upon IT managers deciding whether to buy software and equipment."

Jeffrey Fieler, analyst at Bear Stearns, speculated that Amazon may also have benefited from the death of competing dot-coms, saying that "the pricing environment continues [to be] benign as the competitive landscape of online retailers becomes littered with casualties".

Fieler did however, drop estimates for the year to a 83 cents per share loss from a 73 cents per share loss.

And ABN Amro's Arthur Newman cautioned that "a key question is whether the company has materially reduced overall losses in early stage/international [categories]".

Amazon's outlook is a welcome dose of good news for the tech sector. A record number of Internet and technology companies have issued profit warnings for the first quarter, according to First Call.

Earnings for the Standard & Poor's 500 tech sector were expected to fall 36 percent year over year in the first quarter. Analysts have cut their earnings forecasts 40 percent since 1 January and 13 percent since 1 March.

Amazon said gross profit is expected to be about $175m. Amazon said the net loss should be less than $255m, including a $105m charge for restructuring.

Chief executive Jeff Bezos called the quarter "excellent", saying that "for the fifth consecutive quarter we saw substantial improvement in our operations and bottom-line performance. Electronics demonstrated especially strong growth and improvements".

Sales of books, music and videos in the United States -– the company’s only profitable division -– were up slightly, although the company said gross profit in those categories increased more than 30 percent.

The company will formally announce results 24 April.

Amazon had cash and marketable securities of more than $640m, at the end of the quarter, and that number is expected to rise to more than $900m by 31 December.

That's a key figure for Amazon -- analysts have expressed concern that the high-flying retailer could fall victim to credit concerns.

In February, then-Lehman Brothers bond analyst Ravi Suria issued a report warning that the company’s working capital -- defined as current assets minus liabilities -– would head into the red later this year, prompting suppliers to refuse to ship items on credit.

Suria, who has since left Lehman for a hedge fund firm, had taken aim at Amazon before, particularly concerning its cash position.

And while some analysts disagree with his numbers, Suria wasn’t alone in expressing concern about the company.

In January, the company announced a restructuring plan that included laying off 15 percent of its staff. Albright said that today’s news could help dash the credit fears.

"It does give us more comfort in Amazon’s ability to break even in the fourth quarter, and in breaking even, Amazon will start to counter the arguments suggesting that Amazon is going to go bankrupt," he said. "We know they’ve got a good cash model but that doesn’t mean anything if they’re not profitable."

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