Amazon's Shares Float Higher as Revenue Flows In

"Our continued operational progress and momentum allow us to offer year-round free shipping, and at the same time increase our 2003 guidance," Tom Szkutak, Amazon's CFO, said in a statement. "Our 2003 objective is to continue improving productivity and lowering prices for customers."

Amazon expects customers to save $100 million on free shipping in 2003, Szkutak said in a conference call with investors and analysts. Those savings will come at Amazon's expense, company spokesman Bill Curry said.

"We believe this is the right investment to make," Szkutak said on the call.

Amazon upped its guidance for 2003, saying it expects sales to grow 15%. Previously, the company had said it expected sales to grow 10% this year.

For the first quarter, Amazon expects sales to grow 21% to 27% year over year to $1.03 billion to $1.08 billion. The company expects to post a pro forma profit of between $5 million to $20 million, 1 cent to 5 cents per share. Company officials declined to project earnings based on generally accepted accounting principles, citing the difficulty of forecasting its stock price or the euro-dollar exchange rate, both of which will affect its net earnings.

Most of Amazon's business segments performed well in the quarter. Its core business -- media products such as books, music and videos sold in North America -- reported surging growth. The segment posted operating profit of $72.8 million on $606.1 million in sales during the quarter. Sales rose 13% compared with the same period in 2001. In contrast, sales for the segment rose just 5% in the fourth quarter of 2001 over the same period in 2000.

Amazon also reported improving results with its North American electronics, tools and kitchen segment. During the quarter, that segment posted an operating loss of $9.9 million on $261.9 million in revenue. That was down from a $20.4 million loss on $216.6 million in revenue during the same period in 2001.

While sales for the segment declined on a year-over-year basis in the fourth quarter of 2001, they surged 21% in the just-completed quarter.

Like its North American media business, Amazon's international segment also posted an operating profit in the fourth quarter. Sales jumped 76% on a year-over-year basis to $461.4 million. Meanwhile, the operating margin for the segment went from a $10.5 million loss to a $20 million profit.

Amazon's services business, where third parties from TargetTGT and Circuit CityCC to mom-and-pop auctioneers pay to sell products or advertise on its site, stagnated in the quarter. Sales grew just 1% on an annual basis to $99.2 million. Meanwhile, the operating margin declined from a $25.7 million profit in the fourth quarter of 2001 to a $19.1 million profit last quarter.

Part of the stagnating revenue is due to the way Amazon classified some of its services revenue, Szkutak said on the conference call. Amazon has begun to include some of its services revenue within the results of its other segments, he said. So, for instance, Amazon included revenue from its Circuit City deal within its electronics, tools and kitchen segment, he said.

But the stagnation and the decline in margins also reflected the expiration of some of Amazon's older, more profitable marketing deals that expired recently, Szkutak said. "For the next several quarters, this [trend] will be unfavorable to us," he said.

During the quarter, Amazon opened a new apparel department that features clothing from The Gap GPS, Nordstrom JWN and Lands' End. Based on the number of units sold in the first 60 days of its opening, the apparel section was the most successful new store launch in Amazon's history, said Jeff Bezos, the company's CEO, on the conference call.

"This is important because it speaks to the size of our ultimate addressable market," he said.

And Amazon, which has consistently attempted to expand beyond its origins as an online bookstore, doesn't plan to stop there. The company plans to add "a number" of new departments in 2003, Szkutak said. Company officials declined to give details on what new products those departments would offer.

"We wouldn't want to tip our hand as to where we go next," Bezos said.