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Amazon slips after peptalk
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June 5, 2001: 6:35 p.m. ET
Biggest Internet retailer reaffirms guidance for first-ever operating profit
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NEW YORK (CNNfn) - Executives of online retailer Amazon.com presented an extremely upbeat outlook for their business when they met with analysts in Seattle on Tuesday, but many walked away with more questions than answers.
Shares of Amazon (AMZN: down $0.04 to $15.95, Research, Estimates), which is the largest Internet retailer, fell 2.8 percent as the broader Nasdaq composite rallied.
Warren Jenson, Amazon's chief financial officer, reiterated the company's forecast that it expects to log its first ever profit, excluding one-time items, in the fourth quarter of this year.
At the same time, Jenson said Amazon expects to be profitable for all of 2002, and promised the analysts they would see evidence of "tangible progress" going forward.
"I think you will walk away understanding our confidence in the fourth quarter," Jenson said. "We are highly confident in our ability to deliver pro forma operating profitability in our fourth quarter."
Despite the company's optimistic forecasts for the fourth quarter, the most recent consensus estimate of analysts polled by First Call is for Amazon to log a pro forma operating loss of 7 cents per share.
And Jenson's forecast for "profitability" in 2002 stands in stark contrast to the current consensus estimate for a loss of 33 cents a share.
That's because Amazon's projections exclude interest on $2.1 billion in outstanding debt, a figure analysts include in their estimates for Amazon's results, a First Call analyst said Tuesday. That exclusion is unusual because debt is a part of a company's core business, so most analysts include it in their earnings estimates, the analyst said.
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Amazon executives also unveiled plans Tuesday to begin selling PCs in the second half of 2001. That announcement comes at a time when PC sales have been slumping.
But David Risher, head of Amazon's U.S. retail business, said online PC sales remain relatively solid and that he sees future growth in the business.
Risher also said the company would start a new cross-marketing service Tuesday called "Amazon Extra" in which products of varying levels of profitability are bundled together for a particular customer. In other words, a customer ordering the movie "Gladiator" would be offered a chance to buy "Spartacus" for an additional $10, Fisher said.
Amazon also said it plans to get into institutional book sales in the second half, such as to schools. Fisher envisions that becoming a $150 million business within the next few years.
Other new features include partnerships with sites like blackbelttheater.com, an e-commerce site featuring videos and memorabilia of Kung-Fu films, executives said.
Some analysts who attended Tuesday's meeting said Amazon was providing more details about how it was making its operations more efficient, but questions remained over how it will fare in the economic downturn and how it will set up the new businesses.
"They still have a long way to go, but they've had steady progress," said Steve Weinstein, an analyst with Pacific Crest Securities. "They've got to get their main businesses up to scale. They're not really there yet. They haven't grown into the infrastructure they have in place."
While some viewed Amazon's foray into the PC business as risky considering the current cutthroat pricing environment and low profit potential, Jeetil Patel, an analyst with Deutsche Bank Alex. Brown, said he thinks the company can make it work.
Patel said he expects Amazon's PC store will outsource inventory to major computer makers rather than stocking the machines itself.
"PCs will be incrementally positive," Patel said.
Risher said while PC sales in physical stores for the first two months of the year fell 23 percent from a year ago, sales online rose 77 percent. Selling PCs would boost Amazon's sales of electronics such as digital cameras and other computer accessories, he said.
"Not only do we like PCs as a business in itself, but we like what it does for our electronics business as well," Risher said. He offered no specific details about Amazon's plans for the online PC store. 
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