Amazon loss beats expectations, but sales stall

The Seattle-based company reported a pro forma net loss of $115.7 million on $577.9 million in sales, compared with a loss of $82.8 million on $314.4 million in revenue during the same period last year.

On a per-share basis, Amazon's loss was 33 cents per share. Analysts surveyed by First Call/Thomson Financial predicted Amazon would lose 35 cents a share.

However, analysts had also expected Amazon to record $585 million in revenue for the second quarter.

Amazon's revenue grew by less than 1 percent from the $574 million in sales it posted during the first quarter. In addition, sales of books, music CDs and videos in the United States declined 4 percent to $385.3 million in the second quarter from $401.4 million in the first quarter.

Amazon shares closed down $1.56 at $36.06 today. In after-hours trading the shares slipped to about $33.

Genni Combes, who covers Amazon for Chase Hambrecht & Quist, said the company's report was a mixed bag. While it reined in some costs compared with last quarter, its revenues were "disappointing."

"Frankly, based on the way the stock's been trading, this is what the Street has been expecting," Combes said.

In a conference call with analysts and investors, Amazon executives acknowledged that the company's rate of revenue growth was slower than they had initially projected and blamed the growing seasonality of Amazon's business, in part, for the slowdown. But they said they were happy with the results, noting that the company's year-to-year growth was 84 percent for the quarter.

"We feel that's very good," said company chief executive Jeff Bezos. "Few businesses are able to turn in that kind of year-over-year growth figure."

The earnings report comes amid a slew of negative news for the beleaguered e-tailer.

In the last two days, two analysts have downgraded Amazon's stock. Holly Becker of Lehman Brothers, who downgraded the stock from a "buy" to a "neutral" rating today, said in a report that she is "throwing in the towel on Amazon."

Amazon announced yesterday that Joseph Galli, its president and chief operating officer, had resigned to become the CEO of VerticalNet. Several analysts saw the departure as potentially troublesome for Amazon.

Today, the company suffered a 40-minute site outage it blamed on "network problems."

The recent problems for Amazon come as its critics have become more vocal about their skepticism of the company's prospects. Earlier this month, for instance, Ram Partners general manager Jeff Matthews questioned Amazon's growth rate, noting that its expected quarter-to-quarter growth would be less than that of offline retailers such as Kmart.

Last month, the company's stock slipped to a 52-week low amid questions about its $2 billion debt and concerns about its quarterly results.

The company did have some positive news to report. Despite the widening loss compared with last year, its loss narrowed compared with its $121 million first-quarter loss. And its gross profit margins--the difference between what a company charges customers for its goods and services and what those goods and services cost the company--improved from 22 percent in the first quarter to 23.5 percent in the latest quarter.

In the second quarter, Amazon launched a health and beauty store and a home furnishings store in conjunction with Drugstore.com and Living.com, respectively. Both companies are a part of Amazon's so-called "commerce network." In contrast to its traditional, low-margin businesses of selling books and videos directly to customers, Amazon's commerce network offers it the possibility of becoming a high-margin shopping portal.

Amazon gained $24 million in revenue from its commerce network during the quarter, company executives said. Without the revenue, the company's gross margins would have been 20.2 percent.

Despite this boon to revenues, company chief financial officer Warren Jenson said Amazon expects to have to renegotiate several of its deals with its commerce network partners, which will lead to flat, lower-than-expected revenues from the network in upcoming quarters.

Still, Jenson said the company expects "strong" year-over-year growth during the next two quarters and plans to decrease its operating losses to less than 10 percent of revenues by the fourth quarter. The company's pro forma net loss from operations was 15 percent for the latest quarter.

"We've checked another guidepost on the path to profitability," Jenson said. "The goal remains the same: triple digit returns on capital."

Jenson and Bezos declined to forecast next year's results or when the company might reach profitability.

In addition, the company reported that it added 2.5 million new customers during the quarter. Amazon says it has more than 23 million customers.