Amazon Tops Estimates Despite Wider Q1 Loss

Despite posting a revenue decline in consecutive quarters, e-tail giant Amazon.com (Nasdaq: AMZN) reported better-than-expected financial results for the first quarter Wednesday.

Amazon reported a first-quarter pro forma net loss of $122 million (US$), or 35 cents a share, compared with a loss of $36 million, or 12 cents, in the same quarter last year. Analysts had expected the e-tail giant to lose about 36 cents a share before equity investments and other costs.

Amazon’s net loss, after all charges and other costs, widened to $308.43 million, or 90 cents a share, from $61.67 million, or 20 cents.

The company said it gained 3.1 million customer accounts in the quarter, bringing the total to 20 million at quarter’s end. Repeat customers accounted for 76 percent of all orders.

March Toward Profitability

President and Chief Operating Officer Joe Galli said the company made “terrific progress” during the quarter as far as “customer growth, product and service expansion, operational excellence, global focus, extending the Amazon Commerce Network, and driving toward profitability.”

Chief Financial Officer Warren Jenson added that he expects the company’s U.S. books, music and DVD/video division to achieve a pro forma operating profit this year. The company as a whole, he said, will be “operating cash-flow positive” for the rest of the year.

That will be “enough, we expect, to more than cover our planned capital expenditures,” said Jenson. “We are well positioned to deliver on our 2000 plans.”

Shares Open Lower

Amazon shares opened lower Thursday, trading down 4 3/8 at 49 1/8. The stock is down from a 52-week high of 113, reached in December.

Amazon officials have said they are aiming to make the company profitable, but have not set a firm timetable. The company, which started in 1995 as an online bookstore, now offers more than 18 million different items, ranging from toys to wine to health and beauty products.

All three Amazon operating segments — U.S. books, music and DVD/video; international; and “early-stage businesses and other” operations — lost money in the quarter.

“Looking at the progression in the model, we think there’s a strong possibility of profitability sometime next year,” said Greg Konezny, vice president at US Bancorp Piper Jaffray.

European Sites Grow

Amazon has beefed up its three European sites — ranked by Media Metrix as the top three in terms of European reach — as well. Amazon said its UK Web site has the biggest selection of videos and DVDs in that country.

Amazon also has stakes in a number of smaller e-tailers, including Pets.com (Nasdaq: IPET) and Homegrocer.com (Nasdaq: HOMG). Like Amazon, most of the smaller sites have yet to see profits.

Commerce Network Potential

Piper Jaffray’s Konezny said the real potential for Amazon lies in its e-commerce platform, which the company calls the Amazon Commerce Network.

During the quarter, Amazon forged an alliance with Drugstore.com (Nasdaq: DSCM) that includes a direct link from Amazon’s site to Drugstore’s site, with Drugstore essentially paying to market its services through Amazon.

“Amazon has yet to leverage some of the back-end infrastructure” to market this service to non-Internet companies, said Konezny. If the company works on its technology and opens up that infrastructure, “we could see some more interesting deals, where Amazon is essentially providing end-to-end services,” he said.

Once that happens, he said, “investors are going to look at Amazon in a different light.”

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