Amazon beats the Street with blowout sales, strong holiday forecast

Earnings season during a recession has a way of separating the best-run companies from the rest, and this quarter was no different. That dynamic was illustrated Thursday when Amazon, the web retailer, reported sparkling numbers and a strong holiday outlook just hours after eBay's lackluster Yuletide forecast. Amazon shares were trading up over 14 percent in post-close activity after the company reported that third quarter earnings jumped 68 percent from last year and its Kindle e-reader was selling like gangbusters.
The online retailer's earnings report amounted to a "strong beat" with "even better guidance," Brian Pitz, a UBS Internet analyst wrote in a note to clients after the report.

Amazon said that its Kindle e-reader had become the company's best-selling product. But what really pleased investors was news for the upcoming quarter -- Amazon predicted revenue of between $8.125 billion and $9.125 billion, above the $8.1 billion that Wall Street analysts were expecting.

Amazon's net sales rose 28 percent to $5.45 billion, driven by strong growth in electronics and other general merchandise, up 44 percent to $2.36 billion. Media sales (ie. books and DVDs) grew 17 percent to $2.93 billion.

On a conference call with analysts, Tom Szkutak, Amazon's CFO, said price cuts in the retail book market were one of the company's biggest challenges, but he expressed confidence in the company's prospects.

"We're optimistic," Szkutak said, acknowledging that the book market "has been competitive since we launched, and we have many different competitors around the world."

Last Thursday, Walmart announced it would sell 10 sure-to-be popular new book releases -- including Under the Dome by Stephen King and Going Rogue: An American Life by Sarah Palin -- for just $10 through Walmart.com. Amazon quickly responded, matching Walmart's price -- only to see the big-box behemoth strike back, slashing its prices to $9.

Analysts pressed Amazon executives about product profit margins, given the budding price wars breaking out ahead of the holiday, but Szkutak basically dodged the question.

"From our perspective we're going to continue to focus on what's right for customers in all of our categories," Szkutak said. "Our focus is free cash flow and free cash flow per share," he added, "so we focus on the operating cash flow and free cash flow dollars, not margins."

As the price war with Walmart.com and other competitors intensifies, Amazon's may want to re-evaluate that position.
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