Amazon has DVD rental in view

ONLINE retailer Amazon.com has hinted that it may enter the online DVD rental business, as predicted by sector pioneer Netflix.

Speaking after announcing another huge profits surge, chief financial officer Tom Szkutak said Amazon was well-positioned to start such a business but had nothing to announce yet. In an ominous sign for Netflix, and even for rental giant Blockbuster, he said a DVD business would involve virtually no start-up costs for Amazon.

'Our customer acquisition costs can be low to none, given Amazon.com's traffic,' he said.

Netflix horrified Wall Street last week by slashing its monthly subscription fee to go after growth rather than profit. It also said it was scrapping plans to roll out the service in Britain, a market Amazon is well-positioned to walk into.

Seattle-based Amazon more than trebled third-quarter net profit to $54.1m (£29.6m) up from $15.6m a year earlier. Sales in Britain and other markets outside the US are soaring - up 52% at $646m - although forex considerations reduced growth to 39%. Total revenue rose to $1.46bn from $1.13bn.

Once again, the company reaped the benefits of its expansion from bookseller to fully-fledged online retailer. Non-book sales surged 55% to $1.47bn with top sellers drawn from a diverse range of products, including Apple iPods, Similac baby milk, the Sims II video game and Sony Ericsson mobile phones. Despite the result, the shares fell 8% in after-hours trading because of the company's already-rich valuation and its more cautious outlook for next year.

Amazon is trading at 39 times earnings, in line with the tech sector but high compared with other retailers. It sees sales growth slowing from almost 30% this year to between 6% and 22% next. Szkutak attributed a 23% rise in operating expenses to money spent on distribution centres and investments in technology and content which have helped drive growth.

'We expect absolute dollars spent on technology and content to increase over time as we continue to add computer scientists and software engineers to our staff, he said.

Amazon projected full-year 2004 net sales of between $6.68bn and $6.93bn and 2005 net sales of between $7.4bn to $8.15bn - in step with analysts' estimates for this year but lower than expectations for next.