UPDATE 3-Amazon beats Q1 sales, profit estimates, shares up

* Q1 EPS 41 cents vs Street’s 31 cents

* Sees Q2 revenue $4.3 bln-$4.75 bln

* Sees Q2 operating income $110 mln-$190 mln

* Shares up over 2 percent in extended trade (Adds comments, details on Kindle, valuation comparisons)

By Alexandria Sage

SAN FRANCISCO, April 23 (Reuters) - AMZN.O on Thursday beat Wall Street expectations for quarterly earnings and revenue as lowered prices lured more shoppers online and sales of its Kindle electronic reader gained momentum.

Shares in the global online retailer, which sells everything from car parts to comic books, rose 2.3 percent in after-hours trade despite a weak second-quarter profit view.

The company increased revenue an unexpectedly strong 18 percent as cash-strapped consumers went shopping online and Amazon’s own discount shipping program spurred purchases.

“Sentiment is so positive on Amazon, for the stock to decline it would have had to miss numbers entirely,” said BWS Financial’s Hamed Khorsand. “You have this aura of positive sentiment around the stock. That will keep the stock afloat.”

Promotions and cost-consciousness -- as customers eschewed a trip to the mall in favor of browsing for free online -- helped it post a 21 percent sales gain in North America.

“It tells you how well they’re executing and winning business with customers and increasing share of wallet with their consumers,” said Steve Weinstein at Pacific Crest Securities, which does not own Amazon stock.

He noted that Amazon’s U.S. business was growing faster than the overall e-commerce market. “It’s an incredible feat.”

Chief Executive Jeff Bezos said sales of the company’s Kindle had “exceeded our most optimistic expectations.”

The Kindle, sales of which are not disclosed, has garnered out-sized attention but analysts cannot speculate to what extent the $359 device contributes to profit, if at all.

“The important takeaway from Kindle is not only is it a revenue generator, but it’s also incremental revenues from e-books being sold,” Khorsand said.


Bezos also said shoppers enrolled in the Amazon Prime discount shipping program were boosting growth, as they were picking up goods across multiple categories.

Executives made no reference during a call with analysts to a difficult global economy that has battered rivals, including e-commerce giant eBay Inc EBAY.O, whose results on Wednesday beat Wall Street estimates despite sluggish sales in its marketplaces unit. [ID:nLN730120]

Amazon’s first-quarter net income rose 24 percent to $177 million, or 41 cents per share, from $143 million, or 34 cents per share, a year earlier. Analysts, on average, had been expecting earnings of 31 cents a share, according to Reuters Estimates.

Revenue rose 18 percent to $4.89 billion, but excluding the negative impact of a stronger dollar, sales rose 25 percent. Wall Street had been expecting sales of $4.75 billion.

Once criticized for spending on technology investments and putting sales ahead of profits, Amazon is now praised by Wall Street analysts who laud its ability to attract consumers in the midst of a recession.

Besides lowering prices, the company has widened its selection, and the recent closures of retailers like Circuit City CCTYQ.PK have only helped the online giant's sales.

“They’re choosing to use pricing and shipping as a lever to drive sales. It is working mathematically for them,” Weinstein said.


But a run-up in its stock -- up 57 percent since January -- has made its valuation soar, scaring off potential investors. Amazon is now valued at 53 times projected 2009 earnings, compared to the 16.5 of the Standard & Poor's Retailing Index .GSPMS, a valuation many analysts deem overly rich.

International sales in the quarter rose 15 percent, but on a currency neutral basis that figure was 28 percent.

Amazon also credited inventory management and growth in independent sellers who use the site as their marketplace as reasons for a boost in gross margin, which was offset by lower prices. Amazon gets an undisclosed cut of what is sold.

Bezos said a 300 percent increase in items sold by these independent sellers but shipped by Amazon under its fulfillment program was due to Amazon Prime. If sellers work with Amazon’s fulfillment program, their goods are eligible for the shipping discount, thereby driving sales, he said.

Amazon said it expects second-quarter revenue of $4.3 billion to $4.75 billion, or a gain of between 6 percent and 17 percent. Operating profit is expected to range from $110 million to $190 million, a decline of between 12 percent and 49 percent. In the year-ago second quarter, results were boosted by a one-time gain.

Wall Street has been expecting operating income of $178.5 million, above the mid-point of Amazon’s guidance.

Amazon’s shares rose 2.3 percent in extended trade to $82.50 after closing at $80.61, up nearly 2 percent, on Nasdaq. (Reporting by Alexandria Sage; Editing by Edwin Chan, Carol Bishopric, Richard Chang)