Amazon Sales Guidance Rushes Higher

Earnings beat estimates, as the company says its price-cutting efforts are boosting sales.
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Updated from 4:43 p.m. EDT's

(AMZN) - Get Report

numbers flowed well beyond Wall Street's estimates Thursday, rewarding investors who have ridden a swelling stock in a down year for the market.

For the third quarter ended Sept. 30, the online retailer reported revenue of $851.3 million, well ahead of the $809.5 million consensus of analysts surveyed by Thomson Financial/First Call. Pro forma net profit, excluding stock-based compensation, amortization of goodwill and several other items, rounded off to breakeven, compared to analysts' expectations of a 4-cent per-share loss.

Free cash flow for Amazon, whose cash-generating prospects have been the source of contentious debate over the years, amounted to $120 million for the trailing four quarters, compared to a negative $301 million for the four quarters ended in September 2001. Free cash flow is cash flow from operations after interest payments and capital expenditures have been deducted; it excludes proceeds from the exercise of stock-based compensation.

In accord with generally accepted accounting principles, the retailer reported a net loss of $35.1 million, or 9 cents per share, compared to the year-ago loss of $169.9 million, or 46 cents per share.

The company also boosted financial guidance for the fourth quarter and the year, saying sales would rise 19%-28% for the current quarter and 10% next year.

Amazon's fourth quarter sales forecast, covering a range from $1.325 billion to $1.425 billion, exceeds the current $1.25 billion consensus. Pro forma operating profit -- which excludes stock-based compensation, amortization of goodwill and other intangibles, and other charges -- is expected to rise from the $27 million figure in the third quarter to between $70 million and $95 million for the fourth.

The company's 2003 sales guidance implies sales of $4.27 billion, more or less, compared to analysts' mean forecast of $4.17 billion.

Pro forma operating profit in 2003, says Amazon, is expected to exceed $200 million, compared to the $161 million for 2002 implied by the company's guidance.

Amazon said free shipping would continue on orders over $25 at least through the holidays.

"We've lowered prices five times over the last 15 months, and simply put, it's working," said CEO Jeff Bezos. "Based on the results so far, we've made the decision to leave Super Saver Shipping -- free on orders over $25 -- in place at least through the holidays."

Amazon's 2002 rally

The company was long seen as a prime example of the profligacy of the dot-com age, but in recent quarters Amazon has won over investors by showing progress in cutting costs and in boosting sales. The company posted its first-ever profit in January after a stronger-than-expected last quarter of 2001.

Shares in Amazon, which established a new 52-week intraday high of $22.03, ended normal trading at $19.86, up 11 cents. In after-hours trading, the stock rose, then dropped 56 cents from the close.