Amazon Reports Rise In Revenues And Losses

Amazon.com (Nasdaq: AMZN), the Web’s most-visited e-commerce site, reported a sharp rise in revenues when it announced its third-quarter results after the financial markets closed on Wednesday.

However, as expected, the company also reported a sharp rise in losses.

Net sales for the third quarter were $356 million (US$), an increase of 132 percent over the $154 million reported for the third quarter of 1998. The company’s net third-quarter loss was $86 million, or 26 cents per share, two cents better than analysts had expected. In the third quarter of 1998, Amazon.com lost $24 million, or eight cents per share.

The mounting losses have helped Amazon.com greatly expand its customer base. The company disclosed that cumulative customer accounts — including users of Amazon.com’s auction service — increased by 2.4 million during the third quarter to 13.1 million on September 30th. These figures represent an increase of more than 190 percent from the 4.5 million customer accounts on September 30, 1999.

Amazon Prepares For Holiday Season

Amazon is clearly building the largest customer base among e-commerce sites, but some investors remain concerned that turning this huge user base into the foundation of a profitable company could be a long way off. Shares of Amazon.com closed down 5-5/16 to 75-15/16 yesterday prior to the announcement. The stock fell further in early trading today, dropping 6-7/16 to 69-1/2.

Amazon.com, which launched a toy store in the third quarter, is banking on some of its spending paying off in the fourth quarter. Amazon expects its new Wish List gift registry and minority investment in wedding gift registry service Della & James to help boost sales during the upcoming holiday season.

Revenues Expected To Rise

Amazon.com says that it expects its focus on expansion and customer service to significantly affect fourth-quarter performance, relative to the third quarter. Amazon.com says that top-line revenues will increase significantly, with gross margins decreasing. Amazon.com also expects that fulfillment expenses as a percentage of sales will be flat or slightly increase, and that marketing expenses will increase.

The bottom line is that investors can expect Amazon.com to keep growing and to keep spending a lot of money in order to grow.

One encouraging sign for Amazon.com investors is that repeat customer orders represented more than 72 percent of orders during the third quarter, up from 70 percent in the previous quarter. Given the high cost of customer acquisition for companies such as Amazon, repeat business is a key factor for investors to watch.