January 30, 2008 / 9:12 PM / 10 years ago

Amazon profit up, but margins squeezed

LOS ANGELES (Reuters) - Amazon.com Inc (AMZN.O) on Wednesday issued quarterly earnings and full-year sales forecasts ahead of Wall Street targets, but profit margins declined in what one analyst called a disappointment.

A worker carries boxes through the Amazon warehouse in Milton Keynes, England, November 30, 2007. Amazon.com Inc reported on Wednesday a huge rise in quarterly net profit, boosted by a 42 percent rise in revenue during its important holiday season. REUTERS/Kieran Doherty

Shares of the Internet retailer, which trade at a huge premium to peers, fell about 3.5 percent to $71.61 in after-hours trade.

Hamed Khorsand of BWS Financial noted that gross profit margins were down from a year ago and the previous quarter.

“That was disappointing,” he said. “It seems there was a lot of promotions, discounting in the quarter.” The operating income outlook “doesn’t look too great,” he added.

The fourth-quarter gross margin of 20.6 percent was below 21.3 percent a year earlier and 23.4 percent in the third quarter.

Net profit rose 112 percent to $207 million, or 48 cents per share, from $98 million, or 23 cents per share, a year ago. Sales rose 42 percent to $5.67 billion in the quarter.

Analysts, on average, had been expecting Seattle-based Amazon to post earnings of 47 cents per share on revenue of $5.36 billion, according to Reuters Estimates.

Operating income rose 38 percent to $271 million.

Amazon had been expecting quarterly net sales to range between $5.1 billion to $5.45 billion with operating income of $221 million to $291 million.

Amazon was one of the high-flying tech stocks in the latter half of 2007, but much of that gain was lost in a recent sector sell-off on recession fears and disappointing forecasts from Apple Inc (AAPL.O), eBay Inc (EBAY.O) and Yahoo Inc YHOO.O. Wall Street concerns center on how Amazon, the most popular Web e-commerce site behind eBay, will fare in a recession.

The company gave first-quarter and full-year 2008 sales targets that were higher than Wall Street expectations.

For its first quarter, Amazon said it expects net sales to rise by 31 percent to 38 percent, to between $3.95 billion and $4.15 billion, with operating income of $155 million to $200 million.

Analysts, on average, have been expecting first-quarter net sales of $3.84 billion, according to Reuters Estimates.

Amazon predicts 2008 net sales of between $18.75 billion and $19.75 billion on operating income of $785 million to $985 million.

Wall Street, on average, has been expecting 2008 net sales of $18.1 billion, according to Reuters Estimates.

Shares of Amazon trade at 67 times estimated 2008 earnings, well above the Amex Internet Index .IIX average of 19. EBay and retail giant Wal-Mart Stores Inc (WMT.N), meanwhile, are valued at 16 times forward-looking estimated earnings.

Reporting by Alexandria Sage; Editing by Braden Reddall

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