Updated from 4:40 p.m. EDT

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Amazon.com

(AMZN) - Get Report

, the poster child for the e-tailing industry, Tuesday reported a narrower-than-expected loss and better-than-expected sales for the third quarter. It also expressed optimism about the crucial fourth quarter, and its shares rose in after-hours trading.

Amazon said it lost $68 million, or 25 cents a share, in the third quarter, compared to $79 million, or 26 cents a share, in the same period a year ago. Analysts had expected Amazon to lose 33 cents a share, according to

First Call/Thomson Financial

.

Meantime, the Seattle-based company reported sales of $638 million, greater than the $600 million expected by analysts. (One estimate was as high as $650 million, however.) Third-quarter sales represent growth of 79% from a year ago and 10.4% from the second quarter. Sales also included $20 million of toy inventory sold at cost to

Toysrus.com

as part of the companies' recently announced partnership. Operating profit from the company's U.S. books, music and video business was $25 million, the company said.

Pumbled

This all seems like pretty good news for the Internet retailer, whose shares have been pummeled since the spring amid concerns that it won't ever turn a profit. "This may be the final inflection point

for the stock, with things improving from here," said

Merrill Lynch

analyst Henry Blodget, who rates the stock accumulate. (His firm hasn't done underwriting for Amazon.)

One by one, the company addressed the concerns that have haunted it recently and dragged its shares far below their 52-week high of $113.

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New businesses will spread the company too thin and hurt its efforts to become profitable? Relax already! Gross margin improved to 26.2% from 23.5% in the second quarter. Improved pricing power with vendors, better inventory management and a reduction in split shipments were responsible for the improvement, the company said. "We feel the path

to profitability is clearly taking shape," CFO Warren Jenson said on the conference call.

And Amazon said its nascent consumer electronics unit has become the company's second-largest sales category, behind books and ahead of music. In September, six of Amazon's ten top-selling items were from consumer electronics. As a result of newer product categories, the average spend per active customer rose to $130 in the third quarter from $108 a year ago, said CEO Jeff Bezos.

Better Still

Headed for a weak fourth quarter and 2001? Nope. The company said that sales in the fourth quarter will likely be between $950 million and $1.05 billion, with pro forma operating losses between 5% and 8% of sales. (Consensus was for sales of about $1 billion, including toy sales, which weren't factored into the company's guidance.) Gross margins, however, will likely be below that of the third quarter, due to a seasonal increase in split shipments and holiday promotions.

Sales for 2001 are expected to be $4 billion, with pro forma losses narrowing to less than 5% of sales. Still, that sales growth would represent slightly less than the 50% compound growth Amazon alluded to at its September analyst meeting, noted

Sanford Bernstein's

Faye Landes, who rates Amazon shares underperform, on the conference call. (Her firm doesn't do underwriting.)

Amazon will run out of cash and have to return to the public or private markets in 2001? No, the company said. Amazon said it will have about $1 billion in cash at the end of the year and $700 million in cash and marketable securities on March 31, 2001, the end of the first quarter. "The issue a quarter ago was that they might have to raise cash," said Blodget. "Now, they may raise cash if they feel like it, but they don't need to."

One unexpected negative note: Amazon said the

Securities and Exchange Commission

has made "informal inquiries" about how it treated and accounted for investments in some of its Amazon Commerce Network partners, which include companies like

Pets.com

. "Amazon.com reviewed the accounting for the transactions with its auditors and the SEC staff, and the company believes that the accounting treatment and disclosures were appropriate," the company said.

Amazon's shares rose to $32.68 in after-hours trading on

Island

, up 11% from Tuesday's close of $29.56.