Amazon reports narrower Q2 loss

By Reed Stevenson

SEATTLE: Top internet retailer Amazon.com Inc. has reported a narrower Q2 loss and raised its sales outlook for the year based on strong overseas activity and growth at its online used-goods business. In a first among major Internet businesses, Amazon also announced that it would expense all of its stock options by the beginning of 2003, following the lead of old-economy bastion Coca-Cola Co. after a string of accounting scandals that prompted widespread demands for better financial transparency.

"The reason we've made this decision is because when you expense stock options it opens the door to carefully crafted stock incentives," Amazon founder and Chief Executive Jeff Bezos said. Amazon, which posted a surprise quarterly net profit in the last quarter of 2001, reported a net loss of $94 million, or 25 cents per share, in the three months to June, compared with a loss of $168 million, or 47 cents per share, a year earlier.

Revenue rose 21 percent to $806 million from $668 million a year earlier, at the upper end of the $765 million to $815 million range that the Web superstore had projected. Amazon's adjusted loss was narrower, after stripping out a range of charges including stock-based compensation, and its revenues higher than Wall Street analysts had forecast.

The company also nudged up its sales guidance for the full year to growth of more than 18 percent. That higher guidance topped analysts' average estimates and was also up from the previous 15-percent growth outlook from the Seattle-based online retailer. The most bullish forecast had been for Amazon to post full-year sales growth of about 20 percent, according to research firm Thomson First Call.

Ahead of the earnings release, Amazon shares fell 95 cents, or 6.1 percent, to close at $14.55 on Nasdaq. The stock edged lower in after-hours trade to $14.10. After two years of getting clobbered in the meltdown of Internet stocks, Amazon shares have risen 34 percent so far this year, even as broader stock market indexes have spiraled downward. The stock has more than doubled from its early October low of $5.51.

Pro forma result, outlook higher

Including interest expenses but stripping out a range of charges such as stock-based compensation, goodwill amortization, restructuring, accounting changes and other charges, Amazon said it had a pro forma net loss of $4 million, or 1 cent per share, which beat expectations. On the same basis, Wall Street analysts had been looking for a loss of between 4 cents and 7 cents per share, with an average estimate of a loss of 6 cents per share, according to research firm Thomson First Call.

Improved profit margins and accelerated growth from its electronics, tools and kitchen segment would help it reach profitability on a pro forma net basis in 2002, Amazon said, as well as positive free cash flow. While the decision to start expensing stock options would have an impact on a strict net profit basis, Amazon said it would continue to publish pro forma results to give investors a clearer picture of its operations.

"Those pro forma numbers are the numbers we use to manage the company internally," Bezos said. Amazon also said that during the second quarter:

• New, used and refurbished items sold by third parties on Amazon's Web site made up 20 percent of North American unit sales.



• International sales from Amazon's British, German, French and Japanese sites grew 70 percent to $218 million.



• Electronics, tools and kitchen segment sales growth accelerated to 16 percent from 8 percent in the first quarter of 2002.

© Reuters