Amazon boom as price-cut pays off

MOMENTUM at online retailer Amazon is gathering pace, with the company posting its first quarterly profit outside the Christmas holiday season.

International sales, which are led by the British website, rose 61% to $425m (£254m) in the three months to September. They now make up more than a third of the group's total.

Robin Terrell, managing director for the international side, said: 'The UK and Germany saw a massive increase in electronic goods sales with DVD players leading the way as the price tumbled to just £40 and the price of DVD movies continued to come down.'

Without the benefit of a Harry Potter book release, which lifted the second quarter, British sales were driven by the lowering of the threshold for free shipping from £39 to £25. Terrell said: 'Our prices are still going only one way and we are gearing up for a strong Christmas with particular demand for electronics and kitchen goods.'

Amazon has continued its expansion into areas other than books, with kitchen goods in the UK and an electronics range in Japan.

Global revenues rose 33% to $1.1bn, generating a net profit of $16m. That compares with a loss of $35m in the year-earlier-period. Earnings were 10% higher than analysts' forecasts at 11 cents a share.

It is only third quarter in which Amazon has turned in a profit since since it went public in 1997.

An average of more than 36m people visited Amazon's sites each month during the quarter, a hit-rate beaten only by online auctioneer eBay.

Chief financial officer Tom Szkutak said: 'Our strategy of lowering prices is benefiting customers and our business performance.'

Traditionally Amazon does better over the Christmas season and the company forecasts a bumper holiday trading period this year.

In a conference call, Szkutak said revenue in the next quarter will be as much as $1.91bn, ahead of consensus projections of $1.79bn.

The company expects 2004 revenue of between $5.75bn and $6.25bn, but was cautious about trading conditions.

'As we look at 2004, it's very difficult to get visibility out 15 months,' Szkutak said. 'We think our guidance is appropriately conservative.'

The success of Amazon's strategy has driven up the company's share price. It has almost trebled in a year, leading some analysts to fear the stock is now overvalued, an explanation for the slip of 2% to $57.91 in after-hours trade.