Amazon Plunges on Forecast (Update)

The stock falls nearly 14% on the Internet retailer's caution.
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SAN FRANCISCO -- The economy is finally catching up with


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Even though the online retailer edged past Wall Street earnings estimates for the third quarter, it provided a wider-than-usual range for its fourth-quarter revenue guidance to account for further shifts in the economy.

"All companies have limited visibility right now and we're no different," said financial chief Tom Szkutak, during a conference call with analysts.

For the fourth quarter, Amazon expects revenue in the range of $6 billion and $7 billion. That was shy of Wall Street estimates for $7.05 billion.

The cautious outlook sent the company's shares plummeting 13.8% to $43.10 in after-hours trading. That marked a 57% decline from their 52-week high. Amazon's stock price has gotten hammered in recent days on fears of a slowdown in consumer spending.

The company posted a 48% increase in profit, climbing to $118 million in the third quarter, or 27 cents a share, from $80 million, or 19 cents share, a year ago. The results include a benefit of $15 million related to net foreign currency remeasurements.

Analysts surveyed by Thomson Reuters had predicted earnings of 25 cents a share.

Amazon's sales in the third quarter were up 31% to $4.26 billion, coming in at the low end of the company's guidance, and falling short of Wall Street estimates of $4.28 billion.

Excluding the $80 million favorable impact from year-over-year changes in foreign-exchange rates throughout the quarter, sales grew 28% compared with a year ago.

CEO Jeff Bezos' initial comments were in relation to the sales of electronic book reader Kindle, and how customers have bought 1.6 times as many books on the device compared to physical books.

Kindle has more than doubled the number of book titles available since its launch a year ago, to 185,000 titles.

But most analysts were more interesting in discussing the economy and its effect on Amazon. One of them noted that the company had increased its headcount by a sizeable 2,100 employees in the third quarter, raising questions as to whether it planned to make any cost reductions similar to





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-- both of which have announced job cuts.

Bezos said that the company will continue to invest in its business, "but we'll be prudent in how we'll make those investments."

Sales of worldwide electronics and other general merchandise for Amazon were up 52% year-over-year in the third quarter to $1.64 billion. In the second quarter, sales grew 58%.

Worldwide media sales were up 19% to $2.49 billion. They had grown 31% in the second quarter.

North American segment sales, including Amazon's sites in the U.S. and Canada, grew 29% to $2.3 billion, but down from a 35% increase in the second quarter.

Amazon Chief Financial Officer Tom Szkutak said the company saw slower rates of growth in the latter half of the quarter coinciding with the financial market meltdown. He also noted a strong dollar has hurt the company's businesses overseas.

Although neither Szkutak nor Bezos offered many specifics on consumer spending patterns on Amazon's sites as a result of the economy, they did point out that there has been a deceleration of growth in purchases of over $1,000.

Asked whether Amazon might see another collapse in spending similar to 2001, Bezos said it was hard to know.

"Back then, certain segments were technology-related," he said. "Our business now is so much more diversified across all categories."