UPDATE 3-Amazon outlook disappoints, shares fall

Thu Apr 22, 2010 5:29pm EDT

* Q1 EPS 66 cents vs Street's 61 cents

* Q1 revenue up 46 percent

* Sees Q2 oper profit $220-$320 mln, below Street view

* Shares down about 7 percent (Adds segment performance, analyst, byline)

By Alexandria Sage

SAN FRANCISCO, April 22 (Reuters) - Amazon.com Inc (AMZN.O) forecast lower-than-expected earnings, raising concerns about the online retailer's future margins and sending its shares down about 7 percent.

Like rival eBay Inc (EBAY.O), Amazon disappointed investors who had sought greater acceleration in earnings growth as consumer confidence picks up.

Amazon on Thursday estimated operating profit in its second quarter of $220 million to $320 million on revenue of $6.1 billion to $6.7 billion.

Analysts, on average, have been expecting an operating profit of $327.8 million on revenue of $6.43 billion, according to Thomson Reuters I/B/E/S.

"The fact that operating income (outlook) has a much lower range to it is the key driver of the downside here after the close," said Scott Tilghman, analyst at Hudson Square Research.

"In this case what we have is a very solid first quarter, but it looks like margins compressed ... so that might be a concern going through the rest of the year," he said.

BWS Financial analyst Hamed Khorsand noted that Amazon's forecast for second-quarter sales was slightly above what Wall Street had been expecting, so the lower operating profit view suggested the company was making a bigger investment in its business.

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For a graphic on Amazon earnings,

please click: link.reuters.com/xej98j

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Amazon reported net income for the first quarter of $299 million, or 66 cents per share, up from $177 million, or 41 cents per share, a year earlier. Analysts, on average, had been expecting earnings of 61 cents per share.

Revenue jumped 46 percent to $7.13 billion -- above the $6.87 billion expected by analysts.

IPAD CHALLENGE

Amazon, whose profit surged 71 percent during its holiday quarter, has been on a roll since last year, its sales outpacing both the broader e-commerce and brick-and-mortar retail markets.

Its Kindle electronic reader has kept the company in the limelight, but now faces a market share battle against Apple Inc's (AAPL.O) recently introduced iPad.

Asked about competition from Apple, Chief Financial Officer Tom Szkutak said demand for Kindle "remains very strong."

Amazon's media segment, which includes books, has been improving, as it strives to offer the lowest prices against fierce competition from rivals such as Wal-Mart Stores Inc's (WMT.N) online unit. That segment rose 26 percent in the first quarter.

Currency exchange rates also boosted revenue, the company said. Revenue rose 47 percent in North America and 45 percent internationally.

Amazon shares fell to $139.70 in extended trade after closing at $150.09 on Nasdaq. (Additional reporting by Phil Wahba, Lisa Baertlein and Dhanya Skariachan; Editing by Michele Gershberg and Richard Chang)

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