Amazon Beats Forecast, but Operating Loss Widens

Amazon.com(AMZN), still smarting from the sudden loss of its president, said Wednesday that its operating loss widened in the latest quarter, but the online retailer beat Wall Street's projections and promised to reverse the losses by the end of the year.

The Seattle-based company, however, showed virtually no growth in sales from its first quarter, although sales did rise 84% from the second quarter of last year.

Excluding one-time items, Amazon.com recorded a net loss of $89 million, or 33 cents a diluted share, compared with a loss of $67 million, or 26 cents a share, a year earlier. Analysts had been expecting a loss of 35 cents a share, according to the consensus estimate of those surveyed by First Call/Thomson Financial.

Including acquisition-related costs, Amazon.com lost $317.2 million.

Despite quarter after quarter of losses, Kevin Silverman, an analyst at ABN Amro, said he was confident the 5-year-old company would outsmart its rivals in the online retail world and even record a profit in 2002. Silverman, who had predicted a net loss of 34 cents a share, said his firm had not done any underwriting for Amazon.com.

"The problem with the losses is they were given so much cheap capital that they did what everyone wanted them to do," he said. "They took the money Wall Street gave them and they built this giant infrastructure. It's like the Great Wall of China, and who can beat them?"

Sales in the second quarter reached $578 million, an increase of 84% over sales of $314 million in the comparable quarter of 1999. But sales were almost unchanged from $574 million in the first quarter.

Amazon.com's results come a day after it announced that Joseph Galli, president and chief operating officer, would step down and join VerticalNet (VERT) as chief executive. VerticalNet is a business-to-business Internet company based in Horsham, Pa.

Galli, who spent 19 years with Black & Decker(BDK), sought to dispel any suspicions that he left Amazon.com because he was disenchanted with the company's financial condition. Instead, the prospect of working in Pennsylvania, where he grew up, was too tempting too resist, he said. Plus, Galli's children and former wife live in Baltimore, making the East Coast even more alluring.

The company that Galli leaves behind faces an array of challenges. In pursuit of profitability, Amazon.com has moved beyond its role as a bookseller, offering music, videos, auctions and even hardware and kitchen supplies.

"Our vision remains being Earth's most customer-centric company, the best place for customers to find and discover anything they want to buy online," Amazon.com's founder and chief executive, Jeff Bezos, said in a statement.

Amazon.com has also started zShops, a network that links merchants and shoppers, yet its losses and lackluster sales in recent quarters have worried investors.

Spoiling any potentially positive second-quarter signs, Holly Becker, a Lehman Brothers analyst, downgraded her rating of Amazon.com to "neutral" from "buy" before the earnings announcement Wednesday, saying in a research report that she was disappointed with the company's efforts to widen its appeal. The new elements of Amazon.com's business, like tools, hardware and toys, she noted, have not fared as well.

Making matters worse, Amazon.com's Web site crashed briefly just hours before its second-quarter results were reported.

Shares of Amazon.com, which have dropped off steadily since December of last year, declined on Tuesday as news -- and rumors -- about Galli's departure circulated around Wall Street. And there was no relief on Wednesday, as the company's stock continued to fall, closing finally at 36 1/16, down 1 9/16, or 4.2%.

Amazon said it ended the quarter with a cash balance of $908 million, but that figure would eclipse the $1 billion mark by the end of the year. It also said that by the fourth quarter, the company would record operating losses in the single digits as a percentage of sales. In the latest quarter, the $89 million operating loss represented 15% of total sales.

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