Stay-at-Home Crowd Sits on Amazon's Wallet

Updated from 5:06 p.m. EDT

Looks like the shop-at-home crowd isn't as deep-pocketed as some people hoped.

In the wake of Sept. 11's terrorist attacks, some investors hypothesized that shoppers avoiding the mall might goose sales at Internet retailers such as Amazon.com (AMZN Quote). According to this thinking, outfits like Amazon and eBay could stand to be among the few beneficiaries of the attacks, which have devastated consumer businesses such as travel.

But that view was largely refuted Tuesday, at least in Amazon's case, when the online bookseller fell short of third-quarter sales expectations and trimmed fourth-quarter sales guidance. The company met third-quarter loss estimates and gingerly reaffirmed its limited profit outlook for the fourth quarter, but the stock slipped 7% in after-hours trading.

Lower

Most jarringly, Amazon said that sales in its core U.S. books, music and videos business -- its largest and only profitable business segment -- plunged 12% from a year ago. Slowing sales growth in that business has long been a concern, but most analysts and investors weren't counting on that business actually shrinking. To boost growth, the company vowed to cut prices on books.

Amazon reported $639 million in sales for the third quarter, lower than the $650 million Wall Street expected, according to Thomson Financial/First Call. Its pro forma loss per share, which excludes certain expenses, was 16 cents. This compares with $638 million in sales and a 25-cent loss in the same period a year ago.

Shrinking Amazon losses narrow -- but fast enough?

Source: Amazon.com financials

Amazon was able to meet the earnings consensus despite falling short on sales because it reduced operating costs by 20%, the company said.

The company also gave fourth-quarter sales guidance that fell below the current consensus. Amazon said it expects sales of between $970 million and $1.07 billion, lower than the $1.1 billion expected by Wall Street analysts.

Open Book Sales growth slowing

Source: Amazon.com financials

At the same time, Seattle-based Amazon reiterated its plans to break even on a pro forma basis for the first time in the fourth quarter, though the company hedged by noting that "there are no guarantees."

Watching

Despite Amazon's generally weak results, however, there was good news for investors: Score one for comScore.

The research firm, which offers investor a much-needed window into Amazon's business trends, nailed the company's third-quarter sales figures. The results are notable because Amazon, unlike many bricks-and-mortal retailers, doesn't provide weekly or monthly sales estimates that investors can use to gauge larger selling trends.

comScore directly tracks Amazon's U.S. sales. Chairman Gian Fulgoni points out that Amazon's third-quarter domestic sales of $454.5 million nearly matchedr comScore's estimate of $455 million. Over all, comScore predicted just over $630 million in sales, compared with the actual figure of $639 million.

comScore proved far more accurate than Compete, a Boston-based firm that boldly predicted more than $700 million in quarterly sales. In doing so it struck a far more bullish pose than Wall Street analysts.

comScore hadn't previously made its estimates available to the press, revealing them only to clients. But this summer the firm began breaking with that policy, telling a number of news organizations that it expected Amazon to fall short of the consensus. comScore also published an estimate in July predicting Amazon's third-quarter sales would be weak.

In the long-running battle for information about a widely followed investment such as Amazon, every little morsel is a victory.