Amazon profit doubles on 32% rise in sales

Shares jump in after-hours as results beat Wall Street's estimates

SAN FRANCISCO (MarketWatch) - Amazon.com Inc., the world's largest Internet retailer, late Tuesday reported that first-quarter profit more than doubled and sales jumped 32% as the Seattle-based company sold more goods through its Web site.

For the quarter ended March 31, Amazon (AMZN :

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Last: 44.75-0.02-0.04%
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AMZN44.75, -0.02, 0.0% ) reported a profit of $111 million, or 26 cents a share, compared to the $51 million or 12 cents a share a year ago.

Sales rose 32% to $3 billion, compared to the $2.28 billion from a year ago.

Wall Street was expecting earnings of 15 cents a share on sales of $2.92 billion, according to consensus estimates from Thomson Financial.

Shares of Amazon rose 12% in late trading to $50.05. The stock has risen about 20% since the company last reported quarterly results.

Amazon benefited mainly from a 5% surge in traffic to its retailing sites, which during its first quarter grew at a rate second only to eBay Inc.

EBAY33.76, +0.24, +0.7% ) in the electronic-commerce sector, according to an analysis from Bear Stearns.

More traffic translated into more purchases, according to Nielsen//NetRatings, which on Tuesday said the number of items purchased on Amazon jumped 12% from the same period last year, to 23.1 million from 20.6 million.

The results also got a boost by stronger sales of electronics, which jumped 48% to around $947 million, and increased to 31% of worldwide sales, compared to 28% a year ago.

Sales outside the United States jumped by 35% to $1.4 billion, while domestic sales grew 30% to $1.62 billion.

Amazon.com Chief Executive Officer Jeff Bezos said, in a statement, that the results were also boosted by growing traction for Amazon Prime, which is the company's first-subscription based feature that offers lower shipping rates, and easier checkout.

A jump in interest income also benefited Amazon's bottom line.

One of the most watch Amazon metric its margins, which is a measure of how much it profits from the sale of an item.

According to Citigroup analyst Mark Mahaney, Amazon's operating margin for the quarter was 5.9%, which is "materially higher" that what Wall Street expected and the result of a more positive contribution from Amazon.com's international sales.

"This marked the first quarter of year-on-year margin expansion since the second quarter of 2004," Mahaney said, in a note to clients. He rates Amazon as a sell.

Goldman Sachs analyst Anthony Noto, also commenting about margins, called the results the "first clear positive for the shares." He rates Amazon shares as "neutral."

Amazon also tried to soothe investor concerns about Amazon's capital spending, which has helped to contribute to the company's relatively high margins.

In a conference call following the earnings release, Bezos said capital spending is sure to increase in 2007, as Amazon invests in new features such as its Unbox video store, but at a rate far less than last year.

"As we move forward, certainly still working very hard for further cost improvements," Bezos said, on the conference call.

The company also somewhat tightened its guidance for its second quarter, now projecting revenue in the range of $2.7 billion to $2.85 billion. The company previously had projected revenue in the range of $2.8 billion to $3 billion.

Analysts, meanwhile, had been expecting revenue of $2.69 billion for the second quarter.

The revenue forecast represents growing sales from its aggressive pricing and promotions, and tempered by a postal-rate increase to go into effect in May.

For the year, Amazon said it expects sales of $13.4 billion to $14 billion, representing an annual growth rate of between 25% and 31%. The range is slightly higher than the $13.37 billion predicted by analysts.

Amazon also increased its operating income projection for the year to between $463 million and $593 million. The operating income projection includes about $170 million in what Amazon describes as amortization of intangible assets.

The company said previously that operating income would come in be between $355 million and $505 million, or ranging from a decline of 9% to a gain of around 30% growth.

Amazon also said Tuesday that its board had approved a $500 million share buyback, which will take place over the next two years.

"The $500 million in buybacks should be an additional positive for the shares," said Goldman Sachs' Noto.