Amazon outpaces Microsoft, Google and Ebay in quarterly profits

Amazon defies spending slump - Consumer gas pains a boon as shoppers go online

Someone forgot to tell Amazon.com Inc. about the consumer spending chill sweeping through the United States.

The world's largest Internet retailer announced yesterday that its second-quarter profit more than doubled over the same period a year ago, blowing past analysts' expectations while shrugging off a slumping domestic economy as overseas consumers gobbled up video game consoles and other electronics.

Amazon's strong showing stands in stark contrast to disappointing financial reports from fellow tech bellwethers Microsoft Corp., Google Inc. and eBay Inc. last week. Unlike its fellow tech titans, Amazon's outlook for the second half of 2008 didn't disappoint investors, with the company raising its previous full-year forecast.

"The environment for the online consumer probably isn't as bad as we had feared," said Jeffrey Lindsay, senior Internet analyst with Sanford C. Bernstein in New York.

Amazon's North American sales rose 35 per cent on new product categories such as office supplies and digital book downloads even as consumers wrestled with rising gas prices.

Investors pushed shares of Amazon up more than 8 per cent in after-hours trading to more than $76.40 (U.S.), though the stock is still down nearly 18 per cent this year.

Because of a declining U.S. dollar and growing traction of its sites in Britain, Germany, France, China and Japan, Amazon's international sales jumped 47 per cent.

International media sales - which include books and CDs - rose 31 per cent to $2.41-billion, while sales of other merchandise ballooned 58 per cent to $1.53-billion.

"The international sales are really starting to show the highly levelled growth that the U.S. sales did a year to two years ago, and they're getting an extra kick from the currency advantage at the minute," Mr. Lindsay said.

Amazon also enjoyed a hefty bump from the sale of its European DVD rental business, which netted the company $53-million. However, Amazon still would have beat consensus estimates without it.

Investors had worried that the rising cost of gas would have a negative impact on Amazon, but chief executive officer Jeff Bezos said that higher fuel prices were actually benefiting the company.

Amazon is spending more on shipping costs - the company began offering free shipping on many of its products in 2002 when oil was trading at about $22 a barrel - but consumers seem to be opting to stay home and shop online rather than fill up and drive to the mall.

"Even just driving 10 miles these days is a few dollars worth of gasoline, and customers, we suspect, are beginning to take that into account," Mr. Bezos said during an afternoon conference call.

In order to maintain growth in the U.S., Amazon has steadily added new product categories, such as office supplies, fabric and digital downloads of music, movies and books.

In September, Amazon launched AmazonMP3, an integrated online music store designed to rival Apple Inc.'s iTunes service. Already the store has grown to become the second largest online music retailer in the U.S., and the company has announced plans to take the service global by the end of 2008.

However, the company remained coy about sales figures for its Kindle digital book reader device. Although it was launched in November, Amazon has not publicly disclosed any sales figures for the device.

While its online retail competitor eBay struggles with its clunky transition away from an auction-based system to a more traditional retail model, Amazon has continued to extend its domination of online sales. The Seattle-based company now sells everything from iPods and power tools to jewellery and toys.

*****

Amazon.com

SHARE PRICE, DAILY CLOSE, (AMZN-NASDAC)

Yesterday's close

$70.54 U.S. ,up $2.57

SOURCE: THOMSON DATASTREAM