Amazon turns its first profit

Online retailing giant Amazon turned its first ever net profit in the last three months of 2001, exceeding its own targets and the most optimistic predictions of analysts.

There was too much irrational pessimism around the hi-tech sector... We are in it for the long term, and I think these latest figures send out that message

Robin Terrell, Amazon.co.uk

The retailer had been expected to announce only a so-called "pro forma" profit, an unreliable measure that excludes all but the most basic adjustments.

In fact, it made $5m net of all expenses during the quarter, compared with a loss of $545m a year earlier.

Founder and chief executive Jeff Bezos had promised that Amazon would at least break even on a pro forma basis, but almost no one had predicted that it would record a net profit.

Hi-tech mood improves

The news will cheer hi-tech investors, many of whom have long believed that Amazon had a workable model for making money out of e-commerce.

Even before the US markets opened, Amazon shares were marked up 20%, at around $12.

The company, which began by selling discounted books online, has rapidly moved into a variety of consumer goods markets, including electronics, toys and mobile phones.

Although it has been in the red since it was founded in 1995, and at one stage seemed to be burning through far too much cash, optimists have long believed that its strong brand recognition and smooth logistics gave it the edge over competitors.

"There was too much irrational pessimism around the hi-tech sector," Robin Terrell, managing director of Amazon.co.uk, told BBC News Online.

"We are in it for the long term, and I think these latest figures send out that message."

Still in the red

Over 2001 as a whole, however, Amazon continued to lose money, but it trimmed its full-year net losses to $567m, from $1.4bn the year before.

Amazon now expects "just about to break even" in the first quarter of this year, Mr Terrell said.

But thereafter, successive quarters should, the firm advises, get better, and the company is currently forecasting a full-year operating profit of $30m this year.

At the core of the company's strategy is a series of partnership deals with other vendors, who agree to sell their goods through Amazon's site.

Amazon.co.uk sells wine on behalf of Virgin Wine, for example.

The arrangement is considerably cheaper than acquiring other online merchants, a strategy that Amazon pursued expensively during the late 1990s.

A happy Christmas

The fourth-quarter profit was helped by strong year-end sales, which were $1.1bn during the quarter, up from $972m in the same period of 2000.

In the vital run-up to Christmas, Amazon said that sales for the first weeks of December were up more than 20% year on year - at a time when most US retailers were struggling to match their 2000 performance.

Sales growth was particularly lively on the international stage: Amazon's overseas operations, centred on the UK and Germany, saw 81% year-on-year sales growth in the quarter.

Amazon does not break down the individual results of its international operations, but according to Mr Terrell, its German and UK arms are both now profitable on a pro forma basis.

Books boom

The firm is also sparing in its breakdown of which products are selling the best, lumping its goods into broad categories.

But Mr Terrell said that books, music and DVD/video sales were the most lively, growing at an annual 5% globally during the quarter.

Sales of electronics and other household goods shrank slightly during the quarter, but contribute a healthier profit margin, Mr Terrell said.