Amazon’s Q3 profit rises on electronics
Q4 sales, earnings forecast cut
By Danny King -- Video Business, 10/22/2008
OCT. 22 | Amazon.com’s second-quarter earnings jumped 48% on surging sales of electronics and general merchandise, the world’s largest Internet retailer said today. The company’s stock plunged in extended trading after the company cut its 2008 sales and operating earnings forecasts.
The company’s sales growth of media products from a year earlier slowed to 19% from 31% in the second quarter. Amazon, which in July began offering video-on-demand streaming to help spur media sales, doesn’t break out digital sales or revenue from specific media and electronics categories.
Amazon reduced its sales and profit forecast for the fourth quarter, indicating that the economic slowdown will hinder the company’s holiday season efforts. Amazon chief financial officer Thomas Szkutak, speaking on a conference call with analysts this afternoon, called the forecast "appropriately conservative," adding that growth from year-earlier sales slowed at the end of the third quarter.
"Given weak results at eBay and overall softening retail trends, Internet growth rates are being materially impacted by the recession," wrote Citigroup analyst Mark Mahaney in a note to clients earlier this week. ""We believe fundamental expectations for Amazon appear correctly muted."
Amazon's third-quarter net income was $118 million, or 27¢ a share, up from $80 million, or 19¢, a year earlier, as sales advanced 31% to $4.26 billion. The company was expected to earn 25¢ a share on $4.27 billion in sales, the average analyst estimate in the Thomson Financial poll.
In an effort to continue to build media revenue, Amazon in July replaced its Unbox video-download service with a video-on-demand service that allows customers to stream TV and movie content. The company also has an agreement with Sony in which owners of the TV maker's Bravia HD sets can buy a component allowing direct-to-TV downloads.
Amazon shares had dropped about 13% as of about 5 p.m. EST today.
Sales this year will be between $18.5 billion and $19.5 billion, down from its July forecast of between $19.4 billion and $20.1 billion, while 2008’s operating income will be as much as $876 million, down from the July forecast of as much as $920 million. Fourth-quarter sales will be between $6 billion and $7 billion, less than the $7.1 billion average analyst estimate in a Thomson Financial survey.
