With its sales buoyed by strong international growth and aggressive price-cutting, online retailer Amazon.com Inc. yesterday announced a dramatically lower loss for the third quarter compared with last year.
The Internet retailer reported a loss of $35.1 million (9 cents per share), compared with a loss of $170 million (46 cents) in the same period last year. Sales increased 33 percent, to $851 million, exceeding the high end of the company's estimate of $830 million and analysts' consensus estimate of $810 million, according to Thomson First Call.
"We are committed to lowering prices for consumers even though it's expensive for us," Jeff Bezos, founder and chief executive, said on a conference call, citing the rewards of "relentlessly" lowering prices, in terms of gaining new customers and receiving bigger orders from existing ones.
Overseas sales, based on orders placed at Amazon's British, German, French and Japanese sites, grew 90 percent, to $264 million, with each gaining by at least 60 percent.
"They are growing faster than they even thought they would, and they are still maintaining their gains in profitability," said David Kathman, a Morningstar Inc. analyst.
Amazon has offered promotional deals, such as 30 percent off all books over $15 and free (but slower) shipping on orders over $25, in recent months to attract customers. The company announced it would keep the shipping offer in place at least through the holidays before it decides whether it can afford to keep offering the option on small orders.
"Two of the biggest reservations that people have to shopping online are security and shipping costs," said Michelle David Adams, vice president of Comscore Networks, a market research firm. "They're surpassing one of the main obstacles to shopping online."
But it's not cheap. The company's shipping loss was $10 million this quarter, compared with $2 million in the same quarter last year.
It's too soon to evaluate the attraction of free shipping, Bezos said, because not enough of the company's 27 million active customers -- those who have purchased something from Amazon within the past year -- know about it. The company is preparing a holiday ad campaign.
Sales of books, music and DVDs, Amazon's core business, grew 17 percent, or $412 million, and the unit made a pro forma operating profit, which excludes interest and some other expenses. Electronics, tools and kitchen sales grew 25 percent, or $129 million. Amazon executives said that virtually giving away cell phones had resulted in stronger sales in that unit and greater commission revenue from cellular phone carriers, but that the unit would not be profitable on a pro forma basis for at least another year.
But Adams noted that the firm's U.S. sales were not particularly strong. Also, since the online retail market is recovering, it's difficult to tell how much of Amazon's growth is due to its own initiatives and how much is the result of the favorable environment, Adams said.
Reflecting improved productivity, fulfillment costs -- which include packaging, shipping and credit card costs -- dropped to 10.6 percent of net sales in the quarter, from 12.7 percent in the same period last year.
Amazon made its first, and only, net profit during last year's holiday season and expects another strong fourth quarter. It forecast fourth-quarter sales ranging from $1.325 billion to $1.425 billion, or 19 to 28 percent better than a year ago.