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Tuesday, 24 July, 2001, 09:29 GMT 10:29 UK
Amazon 'on track' for profitability
Screen grab of Amazon.com front page
Amazon says it is on target for a "pro forma" profit
Online retailer Amazon has said it is making progress towards profitability, after announcing its losses were shrinking.

The results beat analyst expectations, but news that the company would miss its original sales forecasts sent the shares down.

Chief executive Jeff Bezos:
Chief executive Jeff Bezos: The company has never said when it expects to make a net profit
In a separate development on Monday, the media giant and internet service provider AOL Time Warner said it would be taking a $100m stake in Amazon.

The new alliance expands a marketing deal first struck in 1997.

Amazon said its pro forma loss for the second quarter was $58m, compared to $116m a year earlier.

Wall Street analysts had forecast a loss of a $80m.

Looking for a profit

Chief financial officer Warren Jenson said the company was still on target to achieve "pro forma" profitability by the December quarter of this year.

The "pro forma" calculation uses less stringent accounting rules than normal, excluding many costs such as stock options and interest payments on $2bn in debt.

But analysts cast doubt upon Mr Jensen's claims after he also said sales would be lower than expected for the rest of this year.

Shares of Amazon, which are well off their 12-month high of $49.63, closed down 5.6% on Monday at $16.03.

Partnership with AOL

Under their new partnership, AOL and Amazon plan to combine Amazon's retail services with AOL's shopping channels and technology.

Amazon will also promote AOL as its exclusive internet service provider.

"We're building on America Online's successful retail strategy, so that, in addition to being marketed through more than 25,000 offline retailers, AOL will now be promoted by the leading online retailer as well," said Barry Schuler, chief executive and chairman of AOL.

AOL shares closed down nearly 3% at $43 before the news was released.

Amazon revenues

Revenues for the second quarter rose 16% to $668m, down from the previous quarter's $700m and below expectations.

The company said it expected net sales for the entire year to be between $625m and $675m, a drop from analysts' expectations of $700m to $725m.

Scott Reamer, an analyst with SG Cowen Securities, said the reduced expectations are largely associated with a softening economy over which Amazon has little control.

Kitchen hopes

Amazon's Mr Jenson said the move towards profitability would be boosted by an "aggressive expansion" of the company's services next year.

This will include the launch of an online US computer store and a boost in its small but fast-growing electronics, tools and kitchen division.

Amazon's core books, music and video unit, which accounts for about 60% of its income, has only grown by 1% in the past year.

But its international segment - in the UK, Germany, France and Japan - is growing, with a substantial improvement in revenues and profits.

The British and German operations are expected to "near" pro forma profitability in the fourth quarter.

Cost-cutting

Although it has not yet turned a profit, Amazon has managed to become the world's largest retailer.

Until quite recently, the six-year-old dot.com had focused on growing sales, rather than earnings, arguing that it needed to create economies of scale before turning a profit.

But as the dot.com bubble burst, the Seattle-based company came under increasing pressure from investors to get serious about making money, and announced its profitability goal.

Amazon's new strategy has meant cutting costs dramatically - it has closed distribution centres, shelved plans for a new corporate HQ and cut 1,300, or 15%, of its staff.

Although the company's shares have fallen 15% in the past six months, it has outperformed the tech-based Nasdaq index, and rivals such as Barnesandnoble.com.

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 ON THIS STORY
Amazon.co.uk Managing Director, Steve Frazier
"Our commitment to being profitable has not changed"
See also:

22 May 01 | Business
Amazon UK expands into electronics
01 May 01 | Business
Amazon loses top spot
24 Apr 01 | Business
Amazon reports smaller loss
12 Mar 01 | Business
Amazon chief's net stock warning
31 Jan 01 | Business
Amazon cuts 15% of its workforce
24 Jul 01 | Business
Amazon's quest for profit
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