Amazon Beats Street for Q2, Gets $100M Investment from AOL

Online merchant Amazon.com (Nasdaq: AMZN) continued making strides towards profitability -- pro forma profitability at least -- with the announcement Monday that the company beat Wall Street estimates for the second quarter ended June 30th by 6 U.S. cents per share.

Amazon and America Online (NYSE: AOL) also announced Monday that AOL has made a $100 million investment in Amazon, building on a relationship that began when the companies inked a strategic alliance in 1997.

Amazon posted a pro forma net loss of US$58 million, or 16 cents per share, beating initial analyst estimates of a loss of 22 cents. Amazon's gross profit (sales minus the cost of sales) increased 32 percent from $136 million to $180 million, while the company's cash and marketable securities totaled $609 million as of June 30th, Amazon said.

However, though it managed to cut the figure nearly in half from the year-earlier quarter, Amazon's net loss for Q2 2001 was $168 million, or 47 cents per share.

The company said it still expects to reach pro forma profitability by the end of 2001. Third quarter sales are expected to fall in the $625 million and $675 million range, with gross margin expected to be between 24 and 27 percent of net sales .

"In some respects this is an historic quarter for Amazon," Amazon chief financial officer Warren Jenson said. "We will continue to trade top-line growth for bottom-line improvement. We are the first to recognize we have much left to do but our path is well defined."

Books Gets Boost

Revenue for Amazon's sluggish books, music, and video (BMV) segment rose 1 percent in the quarter, though gross profit rose 28 percent, the company said.

Jenson said that the company expects operating margins in BMV to decline as the company focuses on profitability.

"We now have the flexibility to pass higher discounts to our customers and still meet our long-term business objectives in this segment," Jenson said.

Shipping Shape

The company also managed to trim some of the fat from its total shipping and fulfillment costs. Fulfillment costs amounted to approximately 13 percent of net sales, down from 15 percent of net sales in the first quarter.

However, Amazon's cost per new customer account rose from $12 in the first quarter to $14 in the second.

Amazon said it will continue to offer shipping promotions to its customers from time to time and might continue to experience fluctuating shipping margins.

"We feel very comfortable that we can be profitable in the fourth quarter and at the same time pass some of the savings back to consumers," Bezos said.

AOL Becomes Amazon's ISP

Amazon announced that its e-commerce platform will now power America Online's Shop@AOL destinations, giving Amazon direct access to 350 AOL merchants and the Internet service provider's (ISP) 30 million-plus members.

As part of the alliance, Amazon will promote AOL as its exclusive ISP.

"This expanded relationship with AOL is another example of our ability to customize our platform to a particular customer's needs," Amazon chief executive officer Jeff Bezos said.

Bezos said the new agreement is not a direct expansion of the marketing agreement the two companies have shared since 1997.

Going Wide

In addition to the AOL partnership, Amazon continued expanding both domestically and globally in the second quarter.

The Amazon-Toys 'R' Us' co-branded site launched almost a year ago has proven quite successful in driving sales for both companies. The two companies expanded their alliance in May with the intent to integrate the Toys 'R' Us-owned Babiesrus.com site into Amazon's pages.

Amazon also inked a deal with brick-and-mortar bookseller Borders to operate the Borders.com site.

Earlier in July, the company expanded its reach into brick-and-mortar stores overseas with its announcement that its British arm, Amazon.co.uk, has teamed up with European mobile phone provider Carphone Warehouse to offer customers pre-paid phones online.