Amazon.com shares soar on rosy outlook, holiday sales

SAN FRANCISCO (Reuters) - Amazon.com Inc posted higher fourth quarter earnings on robust holiday sales, outshining results from other retailers, and forecast first-quarter sales above expectations, pushing its shares 13 percent higher.

Amazon's upbeat outlook and sales performance signaled at least temporary relief for investors who have endured a stream of disappointing forecasts from major consumer companies in past weeks, from Wal-Mart Stores Inc to eBay Inc .

Amazon's 18-percent revenue jump in the fourth quarter came in at the high end of the online retailer's own expectations, and Chief Executive Jeff Bezos cited "unusually strong demand" for its "Kindle" electronic reader.

Seattle-based Amazon acknowledged a gloomy economic environment that has hurt its brick-and-mortar and online rivals -- and eroded its own profit margins -- and declined to provide a full-year outlook due to the uncertainty.

"On the one hand, Amazon is doing incredibly well, but on the other, sentiment was very negative going into results," said Cowen & Co analyst Jim Friedland, explaining the rise in shares.

"The reality is that even though growth is slowing and Amazon is being impacted by the economy, particularly in the U.S., things are not as dire as expectations were."

Analysts have crowned Amazon the online winner of the holiday spending season, at a time when consumers dramatically cut back purchases. Executives cited its lowered prices and discount shipping program, Amazon Prime, that helped boost sales and encourage repeat purchases.

"It looks like they took a lot of market share and made substantial gains," said Jeffrey Lindsay of Sanford C. Bernstein. "The good thing is that Amazon hasn't had to discount to the extent that people feared to achieve this."

Still, profit margins stood below year-ago levels, due to a hyper-competitive environment that spurred discounts.

Gross profit margins were 20.1 percent of total sales compared with 20.6 percent of sales a year earlier, while operating margins fell to 4.1 percent from 4.8 percent.

"Gross margin wasn't as great as we would have liked it, but it was still decent enough and you can't dispute that the company did very well on the top line," said Hamed Khorsand, an analyst at BWS Financial.

Friedland said that while some analysts will be raising their revenue expectations for the company, the pressure on margins could mean that profit expectations remain unchanged.

CONSERVATIVE OUTLOOK?

Amazon's net income in the fourth quarter ended December 31 rose 9 percent to $225 million, or 52 cents per share, from $207 million, or 48 cents per share, a year earlier. Revenue rose to $6.7 billion.

That surpassed the 39 cents and $6.4 billion expected, respectively, according to Reuters Estimates.

Amazon, which posted quarterly operating income of $272 million, had been expecting a range of $145 million and $305 million on sales growth of 6 percent to 23 percent.

In North America, total sales rose 18 percent -- less than the 40 percent growth seen a year ago. They rose 19 percent internationally. Excluding the negative impact of currency rate fluctuations, overall sales rose 24 percent.

Amazon gave what it called an "appropriately conservative" first-quarter operating income range of $125 million and $210 million, on revenues ranging from $4.53 billion to $4.93 billion. Wall Street, on average, had been expecting first-quarter revenues of $4.51 billion.

Bezos said the environment was now ripe for Amazon to begin discussing providing web services for larger companies. Amazon provides a cloud computing platform that offers far-flung users access to storage and computing power in Amazon's data center.

"People in this macro environment, they're looking for ways to save money and cloud computing does that. There's a lot that can be done there," Bezos said, calling it a "silver lining" in the grim economic environment.

Asked whether fewer customers were subscribing to Amazon Prime in the recession, Chief Financial Officer Tom Szkutak said Amazon was "very pleased" with the service, which charges a flat fee of $79 for a year's shipping.

"We have very good subscriber growth and customers like it. That was evidenced further in Q4 during the holiday season," he said.

As for Kindle device, which launched last year and racked up a backlog of orders during the holidays, Bezos said its users continued to buy physical books even while purchasing digital versions.

"We had anticipated strong demand and what we saw was stronger than that," he said.

Amazon is valued at 35 times projected 2009 earnings, at a premium to competitor eBay Inc and Internet giants like Google Inc or Yahoo Inc at 8, 16 and 29 times forward-looking earnings, respectively.

Its shares rose 13 percent in after-hours trade to $56.50 after closing at $50 on the Nasdaq.

(Additional reporting by Lisa Baertlein and Sue Zeidler in Los Angeles; Editing by Edwin Chan)