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Amazon shares sink on earnings news

Shares in the Net's largest retailer sink after it says its second-quarter loss widened because of increased spending to promote and expand its Web site.

Shares of Amazon.com sank this morning after the company posted a second-quarter loss yesterday and signaled that it will continue to spend aggressively to expand its online sales and real-world distribution systems.

"We hope to offer hundreds of additional market opportunities in the next few years," chief executive Jeff Bezos told Wall Street analysts on a teleconference called to discuss the company's second-quarter earnings report.

Amazon said its second-quarter loss widened because of increased spending to promote and expand its Web site, while revenue more than doubled over the year-earlier period. The loss grew to $138 million, or 86 cents a share, from $22.6 million, or 15 cents, a year earlier.

Amazon stock tumbled 8.32 percent shortly after the opening bell, dropping 10.44 points to 115. The stock has traded as high as 221.25 and as low as 21.64 during the past 52 weeks.

Revenue rose to $314.4 million from $116 million a year ago, and from $294 million in the 1999's first quarter. The latter gain, about 7 percent, matched analysts' forecasts of $309 million to $315 million.

Amazon spent heavily during the quarter to promote its Web site, invest in other companies, expand distribution capacity, and add new products such as toys, auctions, and electronics to boost sales. The investments and the retailer's growing base of customers should eventually reap profits, investors said.

"They're going to continue to spend aggressively, and they're expanding capacity ahead of revenue," said Genni Combes, who follows the stock for Hambrecht & Quist. That works well if sales grow, she added, but in a downturn the company is vulnerable because the infrastructure spending is built in.

Chief financial officer Joy Covey said that Amazon expected higher revenue growth in the third quarter. "We will see both absolute dollar and percentage sequential growth somewhat higher than Q1 to Q2 growth, but it is much too early to call it with greater precision at this time."

Amazon also said it will split its stock 2-for-1 and named its new president, Joseph Galli, to its board of directors.

"They're trying to broaden the franchise to be preemptive and be the one-stop e-commerce shop--and that costs money," Bill McVail, analyst at Turner Investment Partners, which held 38,235 shares as of March, told Bloomberg. "But if e-commerce continues to grow the way we believe it will, Amazon is going to benefit."

The number of registered customers rose to 10.7 million from about 3.14 million a year earlier and about 8.4 million in the first quarter. More than 70 percent of sales were to repeat customers. Many investors consider customer loyalty to be an indicator of future sales.

Marketing and sales costs more than tripled to $85.9 million, while product development expenses quadrupled to $14.5 million. Because Amazon entered new categories--consumer electronics and toys just last week--it expects inventory costs to be higher in the current quarter.

"The biggest unknown is how big the holiday season will be," Covey said. "We made the call to err on the side of having full shelves."

Amazon's auction business was its fastest-growing segment, company executives said.

Amazon said its loss, after subtracting merger-related expenses such as goodwill, widened to $82.8 million, or 51 cents a share, from $17.0 million, or 12 cents, a year earlier. Amazon matched the average estimate from analysts polled by First Call, which ranged from 49 cents to 53 cents.

Unofficial earnings estimates ranged from a loss of 40 cents a share at EarningsWhispers.com to a loss of 49 cents at WhisperNumber.com.

The Seattle-based retailer reported its earnings after the close of U.S. stock markets, where the shares rose 5.31 to 125.44. Amazon shares have fallen 40 percent from mid-April, partly on concern increased spending will prolong losses and that it could be hurt as publishers and bricks-and-mortar retailers start selling their goods directly on the Web.

Bloomberg News and Reuters contributed to this report.