Amazon Profits Fall - InformationWeek

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Amazon Profits Fall

A 43% drop in net income was due in part to heavy spending on incentives to attract companies. The marketing blitz appears to be working: subscriptions to the Amazon Prime shipping program doubled from November to December, the company said. Inc. on Thursday reported a 43 percent drop in net income for the fourth quarter, causing its stock to take a big hit in after-hours trading.

The Seattle company said net income was $199 million, or 47 cents a share, in the quarter ended Dec. 31, compared with $347 million, or 82 cents a share, in the same period in 2004. Net sales, however, increased 17 percent to $2.98 billion from $2.54 billion a year ago.

Investors' displeasure with the results were reflected in after-hours trading, which added about an 8 percent drop to the company's stock price to $39.53. The company's shares had ended regular trading down 2.82 percent to $42.74.

The company has been spending heavily on incentives to attract companies, which apparently cut into profits. Jeff Bezos, founder and chief executive of, said subscriptions to its Amazon Prime shipping program doubled from November to December.

Under the service, shoppers pay an annual $79 membership fee for unlimited two-day shipping, with no minimum purchase required. Members also can get next day delivery for $3.99 per item.

The incentives, however, have apparently attracted customers. The number of unique visitors to increased 19 percent in the fourth quarter from a year ago to 48.6 million, according to Nielsen/NetRatings. The number of purchases grew 31 percent to more than 8.2 million from January to November 2005.

For the full year, profits fell to $359 million, or 84 cents a share, from $588 million, or $1.39 a share, in 2004. Net sales, however, increased 23 percent in 2005 to $8.49 billion from $6.92 billion the year before.

For the first quarter of this year, expects net sales to increase between 13 percent and 20 percent from a year ago to between $2.14 billion and $2.29 billion. For the full year, net sales are expected to rise between 16 percent and 23 percent to between $9.85 billion and $10.45 billion.

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