Dizzie disagrees with any thing that's not software bullish.
>>Wednesday, July 24, 2002
By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER
Second-quarter sales at Amazon.com Inc. increased 21 percent to $806 million as the online retailer cut prices, lowered shipping and booked more orders through partners such as Circuit City.
Amazon.com lost $94 million during the quarter, an improvement on the $168 million loss it reported for the same period last year. The Seattle company also said that beginning early next year, it will start expensing stock options, a move that will negatively affect financial results and goes against the lobbying efforts of several high-tech groups.
In a conference call with analysts and reporters, Amazon.com CEO Jeff Bezos said he was pleased with the second-quarter numbers, which exceeded analysts' expectations. Bezos stressed the company's 20 percent growth in book sales, the category in which the company is best known. He also highlighted price cuts for books, electronics, DVDs and other goods, an initiative that -- along with reduction in shipping costs -- helped sales growth in the quarter.
"Lowering price for customers along with (increasing) selection and convenience are the pillars of our strategy and it's working," Bezos said.
In addition to cutting prices on certain products, Amazon.com last month introduced Free Super Saver Shipping on all orders over $49. While that option will cut into the company's margins this quarter, Bezos said the longer-term rewards of lowering prices are "enormous."
The free shipping option on orders over $49 will last for at least another three to six months while the company evaluates how effective it is boosting sales, he said.
"One of the things we know about these kinds of offers is that you have to be cautious how you interpret the early results," Bezos said. "It takes time for the word to spread ... so it is way early to comment on it."
Amazon.com has encountered some challenges on the pricing front in recent weeks. Buy.com, an Aliso Viejo, Calif., online retailer, started an aggressive campaign to woo online shoppers last month by undercutting Amazon.com's book prices by 10 percent and offering free shipping on all orders.
Bezos declined to elaborate on the effect of that competitive threat, saying only that he's been pleased with the company's book unit growth in the first weeks of the quarter.
"We definitely consider ourselves the leaders in this particular space and we are proactive about setting our own pricing agenda," he said. "We think we understand elasticity and customer behavior better than anybody out there."
Amazon.com ended the quarter with $296 million in cash and cash equivalents.
Excluding restructuring and other one-time charges, Amazon.com reported a pro forma net loss of $4 million, or 1 cent a share, compared with $57.5 million, or 16 cents a share for the second quarter a year ago.
On that basis, analysts polled by Thomson Financial/First Call were expecting a loss of 6 cents a share.
International sales, which include sales from the company's Web sites in Germany, France, Japan and the United Kingdom, grew 70 percent to $218 million.
"It was a good solid quarter on the revenue line," said Shawn Milne, an analyst at Soundview Technologies Group. "International sales were very strong again, really showcasing the fact that both eBay and Amazon are benefiting from very little competition globally."
Despite some weakness in the music category, Milne said Amazon was able to offset that slide by increasing its reliance on third-party transactions and the sale of used products. In fact, those types of transactions -- which are cheaper for Amazon.com to process -- now account for about 35 percent of North American orders. Bezos said Amazon.com is trying to open up its technology platform so even more sellers can list goods on the site.
"We are not there yet," Bezos said. "We have made huge progress over the last couple of years (and) there is a huge amount of progress still to come in terms of upgrading our systems to make it really great for third-party sellers."
Amazon.com's decision to account for stock options as an expense comes at a time when many companies -- in the wake of the scandals at Enron and WorldCom -- are re-evaluating their accounting procedures. Earlier this month, Coca-Cola Co. and Bank One Corp. said they would begin recording stock options as an expense. The issue has even reached Washington, D.C., where government leaders have debated the accounting procedure.
The high-tech industry, which often recruits employees with lucrative stock option packages, has for the most part recoiled from proposals to change the accounting of options. But Bezos said by expensing stock options, "it opens the door to more carefully crafted equity incentives."
"Employee ownership is one of the reasons, without a doubt, that Amazon.com has been successful. We have been very generous in sharing equity ownership with employees, and we intend to continue to do that," he said. "But by expensing these awards ... we think we will be able to do a much better job of aligning the interests of shareholders and employees and make it better for everybody."
Shares of Amazon.com fell 95 cents to close at $14.55 in regular trading yesterday. The earnings announcement came after the close of the markets, and dropped the stock an additional $1.24.
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