Scouring Amazon for the Shipping News

How much is free shipping going to cost?

That's what many investors, analysts and customers of Amazon.comAMZN are wondering as the e-tailer prepares to report its fourth-quarter results on Thursday.

Although Wall Street analysts expect the company to post a profit -- only its second as a public company -- many are worried about how much the company's free-shipping promotion cost Amazon in the quarter and how Amazon will tweak the promotion.

"They have to find the right mix on free shipping," said Jeff Fieler, who covers Amazon for Bear Stearns. "There's a limit to how promotional the site can be to try to drive revenue."

Bear Stearns does not have any investment banking business with Amazon.

Amazon's free-shipping dilemma could well affect the company's long-term prospects. If it charges too much for shipping, it could see its growth stall. But if it charges too little, it could have a hard time posting consistent profits.

After posting its first net profit in the fourth quarter of 2001, Amazon announced that it would make permanent a free-shipping promotion it offered during that holiday season. Originally, the company offered free shipping on most orders of $99 or more. The company has since dropped the threshold for free shipping twice, most recently to $25 orders in August.

The promotion, along with lower prices, has helped boost sales, Amazon officials have said.

For the first nine months of 2001, during which Amazon largely didn't have the shipping promotion, its overall sales grew by 12% from the year before. Meanwhile, the company's U.S. retail sales growth slowed to just 2% during that period.

In contrast, the e-tailer's overall sales grew by 25% in the first nine months of 2002 when the promotion was in effect, compared with the same period in 2001. And the company's core U.S. retail business grew by 11% during that period.

But while Amazon's sales growth has reignited, the shipping promotion has proved costly.