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Dissecting Amazon's earnings spin

Amazon has fallen short. Analysts are cutting stock ratings. The bottom line: all that free shipping didn't juice Amazon's sales enough.

After the bell Monday, Amazon.com (Nasdaq: AMZN) said its fourth quarter sales would be in line with estimates and top $960 million with losses on target. Good news, right? Not so fast.

Amazon left itself with a nice hedge -- sales are "expected to exceed $960 million," the company said. But Wall Street had estimated sales of $1.05 billion, according to earnings tracking firm First Call Corp. Technically, the range was between $950 million and $1.05 billion with an optimistic figure of $1.1 billion.

No matter how you slice it, Amazon is coming in at the low end of sales expectations. It would be perfectly reasonable to cut the e-tailer some slack because the economy is slowing, but investors may not go for it. To some folks Amazon's preannouncement will be the equivalent of a sales warning.

Many analysts said Tuesday that Amazon fell short. Goldman Sachs analyst Anthony Noto cut the e-tailer from "market performer" to "trading buy." He cited growth concerns for 2001 and lowered sales estimates to $3.9 billion from $4.11 billion. Amazon was expected to put up fourth quarter sales of $1.5 billion or so in 2001, according to First Call.

The bottom line is all that free shipping didn't juice Amazon's sales enough.

If Amazon had sales of more than $1 billion, it's likely that it would have said so. The other figures tossed around by Amazon are also relatively meaningless without the full earnings report. Inventory was at $175 million for the quarter, and losses will be roughly in line with expectations. First Call is projecting a loss of 26 cents a share.

Shares of Amazon initially surged in afterhours trading, but quickly lost the early gains. That's a reasonable reaction given the good news/bad news nature of Amazon's preannouncement.