Amazon Picks Up Pace Of Sales Growth, Tops Q3 Views With 280% Profit Surge

Late Tuesday, Amazon (NasdaqGS: - ) said it earned 19 cents a share last quarter, up from 5 cents in the year-ago quarter and a penny above the view of analysts polled by Thomson Financial. The profit excludes one-time costs but includes stock-based compensation.

The Seattle-based online seller of books, clothes, electronics and more also raised its sales outlook. It expects sales of $5.1 billion to $5.45 billion this holiday quarter. Analysts were expecting $5.15 billion. Amazon now expects sales of $14.26 billion to $14.61 billion for the year. In July, Amazon forecast 2007 sales of $13.8 billion to $14.3 billion.

Third-quarter sales surged 41% to $3.26 billion, the best mark in 14 quarters and almost 4% higher than analysts had forecast.

Amazon Prime Helped

Operating income more than tripled to $123 million from $40 million in the third quarter of 2006.

"Customers continue to respond to our low prices, our free shipping and the benefits of Amazon Prime," the company's founder and chief executive, Jeff Bezos, said in a statement. Amazon Prime gives members free or discounted shipping for $79 a year.

In a conference call with analysts, Bezos said the company's margins slipped because of lower prices, especially for the latest Harry Potter book.

The company's shares were down 9% after hours, after analysts expressed concern that Amazon's gross profit margin fell to 23.4% from 24.3% in the second quarter and 23.8% a year ago.

But Amazon's shares rose 10.4% in the regular session Tuesday, before it released its latest results, to more than 100, the stock's highest point 19ince December 1999. The stock is up 155% for the year.

This marked the fourth straight quarter that Amazon's year-over-year sales rose at least 30%, and the third straight quarter its per-share profit at least doubled.

"This is a company that has an enormous database of customers," said Forrester Research analyst Sucharita Mulpuru.

Dinosaur Securities analyst David Garrity said, "The wind is at their back."

But Standard & Poor's analyst Michael Souers sees challenges for Amazon this quarter, mostly because consumer spending is expected to slow. Holiday sales in general aren't expected to be as strong as last year, Souers says.

"It's also going to be a very competitive holiday season with Web competition from retailers like Best Buy (NYSE: - )," he said. "Amazon's margins could be (adversely) affected, as they continue to be a low-cost provider."

The company's improved results in the last three quarters have been helped by reduced capital spending and success with Amazon Prime.

2.5 Million Potter Books

The company said it sold 2.5 million copies of "Harry Potter and the Deathly Hallows," the seventh and last book in the popular series. It was Amazon's largest new-product release ever, though profit margin on it apparently was scant.

Nielsen/NetRatings said this week that traffic at Amazon.com rose 6% in the third quarter from a year earlier, to 50.4 million unique visitors a month, on average.

Amazon made good on some promises last quarter. In September it launched its long-awaited online music store, Amazon MP3, which sells songs without copyright protection. And in July it unveiled a service that lets TiVo (NasdaqGM: - ) users buy or rent movies and TV shows from Amazon's digital download service, Unbox.