News Roundup

The Wall Street Journal

By Geoffrey A. Fowler
January 28, 2010

Amazon.com Inc. brushed aside concerns about competition with Apple Inc.’s new iPad tablet, as the online retailer reported record profit and sales that paint it as a big winner in retailing.

The Seattle retailer reported a blockbuster quarter, expanding its share of American retail during an otherwise flat holiday season for stores. Net income far exceeded analysts’ expectations, gaining 71% in the fourth quarter, driven by a 42% increase in sales that stretched across media and electronics.

A day after Apple’s splashy entry into the digital book market, Amazon Chief Financial Officer Tom Szkutak said Amazon is “very excited” about its Kindle business and that “millions of people” now own one of the devices. Responding to a question about competition from the iPad, he said, “We believe that readers deserve a dedicated device.”

Apple unveiled a new line of tablet-style computers and its own digital bookstore in a move that could eat away at the Kindle’s early lead in the burgeoning digital book business.

Over the holiday period, the retailer, despite heavy discounting from bigger retailers including Wal-Mart Stores Inc., increased operating margin to 5% from 4.1% a year ago. With “the growth we have experienced, we were able to take that growth and then leverage our cost structure to deliver the improvements on operating margin,” said Mr. Szkutak.

“The real issue is that they’re getting better terms from suppliers,” said Ben Schachter, an analyst at Broadpoint AmTech Inc. “It shows what power these guys have in the retail channel.”

Amazon’s income for the period ended Dec. 31 rose to $384 million, or 85 cents a share, from $225 million, or 52 cents, a year ago. Revenue rose to $9.52 billion from $6.70 billion.

While Amazon hasn’t released sales data for its Kindle business, it will likely contribute $980 million in revenue and $250 million in gross profit in 2010, estimates Sandeep Aggarwal, an analyst at brokers Collins Stewart. Among more than 40 e-reading devices that rival the Kindle, “Apple is so far the most compelling, competitive threat,” said Mr. Aggarwal.

For the current quarter, Amazon forecast another sharp revenue gain, of between 32% and 43% to between $6.45 billion and $7 billion, compared with the year-ago quarter. It projects operating net will rise between 13% and 50%, to between $275 million and $365 million.

Amazon faces very high expectations from investors, who have boosted the price of its shares nearly 150% over the last 12 months, and some 30% since its third quarter earnings report. In late trading on the Nasdaq Stock Market, Amazon gained about 2% to $128.70, after closing up nearly 3% at $126.03.

Write to Geoffrey A. Fowler at Geoffrey.Fowler@wsj.com