Amazon.com Loss Smaller Than Expected

SAN FRANCISCO -- Excluding acquisition charges, online retail giant Amazon.com (AMZN) reported a loss of 14 cents a share for the fourth quarter, slightly better than the 18-cent estimate from First Call. Amazon's loss was 30 cents in the previous quarter and 8 cents in the year-ago quarter.

Revenue totaled $253 million, slightly ahead of the $250 million that the company pre-announced Jan. 5 and nearly four times the $66 million revenues of the fourth quarter of 1997.

Some analysts had suggested that higher seasonal sales wouldn't translate into lower net losses because margins on music and videos -- two areas that Amazon expanded into last year -- are lower than on its core business of books. But the company managed to produce a smaller loss than expected. Including charges, Amazon's net loss was 30 cents per share, compared with a loss of 8 cents per share in the fourth quarter of 1997.

"This season marked an important inflection point in the evolution of e-commerce," said CEO Jeff Bezos in a conference call, who signaled that the company will be investing aggressively this year. "We believe in what we are doing and are prepared to invest in it," he said.

Bezos acknowledged that competition is only going to accelerate in 1999. "We are going to make the most of the 1999 window of opportunity. We will lay the foundations of growth. No cutting corners and we will take a significant upfront investment." Amazon will invest in its system capacity, marketing and distribution, and is looking to hire many more employees.

As for product areas where Amazon will expand, Bezos says Amazon will likely offer "anything that [customers] might want to buy online. But don't expect too much too soon, or you will be disappointed."

Amazon had 6.2 million customers at the end of the fourth quarter, up 38% from 4.5 million at the end of the third quarter. Sales from repeat customers accounted for 64% of sales. That means that repeat customers bought just $8.2 million more in the busiest shopping season of the year than they did in the third quarter, when total revenue was $154 million.

Gross margins fell to 21.1% from 22.7% in the third quarter, but they were up from 19.5% from the fourth quarter in 1997. Sales and marketing expenses were 19.2% of revenue, down from 24.4% in the third quarter and 24.7% in the year-ago quarter.

Based on analyst forecasts, Amazon.com's losses were expected to shrink from this point on heading into 2000, with perhaps even a profitable quarter by the end of 2001. However, all of Amazon's expansion plans and aggressive spending to build the core business should translate into even greater losses going forward, said Joy Covey, the company's CFO, during the conference call.

As Bezos ended his prepared speech, he addressed the individual investors who might be listening in on the call via Webcast. "We don't spend much time focusing on Amazon.com the stock," Bezos said. "Amazon and other Internet pure plays are very volatile. Because of that, Amazon.com should be a very small fraction of a long-term investor's portfolio. It shouldn't be any portion of a short-term investor's portfolio."

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