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Amazon profit, sales above view and shares rise

Amazon.com Inc said quarterly profit doubled and sales grew 41%, indicating to Wall Street that many cost-conscious shoppers are heading online to save money in a tough economy.

Amazon shares jumped 8%, after zig-zagging in early extended trade because an unanticipated gain on an asset sale initially obscured the underlying earnings performance.

“The numbers are good, very solid,” Stifel Nicolaus analyst Scott Devitt said. “It shows the company is performing very well relative to the industry.”

The company said it benefited from shoppers going online to save on gasoline. Chief Executive Jeff Bezos also said Amazon's Kindle digital book reader was gaining readers, while the number of independent sellers offering goods on Amazon's site continued to grow.

Recent disappointing results from rival eBay Inc and tech giants Apple Inc and Google Inc  have worried investors, who seemed unfazed by Amazon nudging lower the midpoint of its 2008 operating income target range.

The company posted second-quarter net profit of $158 million, or 37 cents per share, compared with $78 million, or 19 cents per share, a year earlier. Revenue in the quarter, which is seasonally the slowest, rose to $4.06 billion.

That beat analysts' average revenue forecast of $3.95 billion, according to Reuters Estimates. The profit comfortably topped the average Wall Street target of 26 cents per share, though excluding the European sale the beat was just 2 cents.

The $53 million non-cash gain was from the sale of Amazon's European DVD rental business and was an unexpected boost to the operating profit margin, as well as earnings.

Seattle-based Amazon, despite lowering prices on many goods to spur purchases during the US economic downturn, reported a rise in operating profit margin to 5.3% of total sales from 4.0% a year ago.

Amazon also benefited from the weak dollar's impact on international sales, which grew 47%. Excluding the weak dollar boost, international sales rose 34% - similar to US growth of 35%.

Amazon said it sees third-quarter net sales of $4.2 billion to $4.425 billion, or growth of 29% to 36%.

Operating income is expected to range between $115 million and $160 million, representing a decline of 6 percent to growth of 31%, and including $80 million in stock-based compensation and amortization of intangible assets.

Amazon said it now expects 2008 net sales of $19.35 billion to $20.10 billion versus $19.1 billion to $20.0 billion before. Wall Street has been expecting $19.6 billion, on average.

Operating income is now expected to be between $745 million and $920 million versus $740 million to $940 million before, lowering the midpoint to $832.5 million from $840.0 million.

Amazon, which has been beefing up its digital offerings, including a new streaming video service, does not reveal Kindle sales. But Bezos said 10% or more of the 140,000 titles available for Kindles, or a low-double-digit percentage, were being sold for electronic reading rather than in book form.

Valued at 45 times projected 2008 earnings, Amazon shares trade well above many Internet stocks as well as traditional retailers with big online divisions like Wal-Mart Stores Inc, Target Corp and Best Buy Co Inc, at 17, 13 and 12 times projected earnings, respectively.

“Good luck to you if you want to buy it here, because it's pretty rich,” Global Crown Capital analyst Martin Pyykkonen said, noting Amazon gave no indication that margins would expand enough to justify such a multiple. (Reuters)