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Amazon.com Earnings Fall

October 2005

Amazon.com Earnings Fall  

A patent infringement settlement contributes to a 44% decline in profit. Sales rise 27%.  

By Julie Tamaki, Times Staff Writer
October 26, 2005  

Despite rising sales, Amazon.com Inc. on Tuesday said third-quarter profit dropped 44% and it warned of slower-than-expected growth in the crucial holiday shopping season. Its shares fell more than 7% as investors worried that the Internet superstore faced stiffer competition from traditional retailers and their growing online presence.

Seattle-based Amazon reported net income of $30 million, or 7 cents a share, compared with $54 million, or 13 cents, in the same quarter last year.

Excluding a $40-million payment — $20 million after tax — to Soverain Software to settle a patent infringement case, Amazon would have earned $50 million, or 12 cents a share, it said. Analysts on average had forecast earnings of 10 cents a share, according to Thomson Financial.

Revenue climbed 27% to $1.9 billion, boosted by the release of the book "Harry Potter and the Half-Blood Prince." Amazon sold 1.6 million copies of the book, making it the retailer's biggest new release in the decade since founder and Chief Executive Jeff Bezos started selling books online.

But executives cautioned that fourth-quarter sales would be at the lower end of analysts' expectations: $2.86 billion to $3.16 billion.

Amazon shares fell to $42.65 in late trading after the earnings announcement. They had closed down 76 cents at $46.17 during regular trading.

Ken Marlin, a managing partner of Marlin & Associates, an investment bank that specializes in media and technology deals, said investors were too focused on quarterly earnings.

He said that Amazon's investments in expensive new infrastructure and customer retention programs hurt the bottom line, but that the company's rapidly expanding product offerings prepared it for future growth.

"I know there's been some questions as to where their growth is going to come from," Marlin said. "We think they have multiple opportunities for growth not only in their traditional businesses such as book selling but also in a plethora of other product areas such as apparel and sporting goods."


A program called Amazon Prime, for instance, gives customers unlimited two-day shipping for $79 a year and has boosted sales among participants.

Executives described the service as an investment they hope will drive sales.

"It changes the way" Amazon Prime members use Amazon, Bezos said.

Copyright 2005 Los Angeles Times

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