Amazon.com turns its first profit ever
( 2002-01-23 08:46 ) (7 )

Amazon.com wowed Wall Street Tuesday by posting its first profit ever: a penny a share in the fourth quarter.

The milestone could signal the stabilization of Internet commerce as e-merchants, who survived the dot-com bust, hone operations while consumers get more accustomed to buying online.

"The guys that are left standing are not only surviving but beginning to prosper," says Shawn Milne, an analyst at SoundView Technology.

Amazon, the biggest online retailer and a pioneer of the sector, beat Wall Street expectations and reported net income of $5 million, or 1 cent a share, on revenue of $1.12 billion, which was up 15% year-over-year.

In the same quarter last year, Amazon lost $545 million, or $1.53 a share.

Wall Street was watching closely to see whether Amazon CEO Jeff Bezos could make good on a promise to turn a pro forma net profit for the quarter. Pro forma results exclude many costs. Bezos did even better with an all-around profit and a pro forma net profit of $35 million, or 25 cents a share.

Amazon attributed the strong showing mainly to running a tighter ship. "We just ran better and much more smoothly," say Warren Jenson, chief financial officer. Operating expenses were down 24% year-over-year.

Amazon has also been successful with partnerships with Toys R Us, Circuit City and Target.

Amazon shares rose on the news, closing up 24% at $12.60.

Despite the rosy numbers, some analysts were dismayed that the company's core sales in books, music and video grew just 5% year-over-year while electronics tools and kitchen products were down 2%. Growth will become even more key as productivity improvements slow this year.

"They can't continue to benefit from cost improvements forever," says Jeff Fieler, analyst at Bear Stearns. "The company needs faster growth to drive the stock higher."

Jenson also said the Seattle-based firm was helped by lowered book prices - which prompted stronger sales in the holiday quarter. It plans to continue to lure shoppers by cutting prices - and adding perks. Tuesday, it announced free shipping on some orders of $99 or more.