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Amazon.com Posts 22% Sales Growth, Expands Digital Efforts

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MAIN NEWS HEADLINES
August 3 – 17, 2006 Edition

Amazon.com Posts

22% Sales Growth,

Expands Digital Efforts

SEATTLE/7/25/06—Amazon.com, Inc. (NASDAQ:AMZN – News) has announced financial results for its second quarter ended June 30, 2006.

Operating cash flow declined 2% to $610 million for the trailing twelve months, compared with $624 million for the trailing twelve months ended June 30, 2005. Free cash flow decreased 23% to $375 million for the trailing twelve months, compared with $486 million for the trailing twelve months ended June 30, 2005. The primary driver of the free cash flow decline was an increased expenditure in technology and content. Free cash flow was also reduced by a $40 million patent litigation settlement in third quarter 2005, $34 million from excess tax benefits for stock-based compensation now classified as financing cash flows, and investments in additional fulfillment capacity.

Common shares outstanding plus shares underlying stock-based awards outstanding totaled 443 million at June 30, 2006, compared with 438 million a year ago.

Net sales increased 22% to $2.14 billion in the second quarter, compared with $1.75 billion in second quarter 2005. Excluding the $24 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 23% compared with second quarter 2005.

Operating income decreased 55% to $47 million in the second quarter, compared with $104 million in second quarter 2005. The decline in operating income was mainly due to technology and content investments, lower prices including free shipping and Amazon Prime, and $20 million from a contract termination and related fee dispute.

Net income was $22 million in the second quarter, or $0.05 per diluted share, compared with net income of $52 million, or $0.12 per diluted share in second quarter 2005.

"We’re investing in Amazon Prime and future technology initiatives," said Jeff Bezos, founder and CEO of Amazon.com. "Amazon Prime gets customers their products fast, and our investments in technology position us to innovate in seller platforms, web services, and digital. We’re looking forward to the coming decrease in our year-over-year growth rates in technology spending in the second half of 2006."

Amazon Prime, Amazon.com‘s first-ever membership program, was introduced in February 2005. For a flat membership fee of $79 per year, Amazon Prime members get unlimited, express two-day shipping for free, with no minimum purchase requirement on over a million eligible items sold by Amazon.com. Members can order as late as 6:30 p.m. ET and still get their order the next day for only $3.99 per item, and they can share the benefits of Amazon Prime with up to four family members living in their household.

Highlights

North America segment sales, representing the Company’s U.S. and Canadian sites, were $1.16 billion, up 21% from second quarter 2005. International segment sales, representing the Company’s U.K., German, Japanese, French and Chinese sites, were $982 million, up 24% from second quarter 2005. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, International net sales growth was 27%. Worldwide Electronics & Other General Merchandise grew 37% to $624 million in second quarter 2006, and increased to 29% of worldwide net sales compared with 26% in second quarter 2005.

The Company launched its new Toy and Baby stores on www.amazon.com, featuring tens of thousands of products offered by Amazon and leading mass market and specialty retailers. This is the largest selection of Toy and Baby products ever offered through Amazon.com, and for the first time ever, Toy and Baby products are eligible for Free Super Saver Shipping and Amazon Prime. The Company launched a Grocery store on www.amazon.com, with over 14,000 dry goods grocery products across more than 1,200 brands – all eligible for Free Super Saver Shipping and Amazon Prime.

Amazon’s German website—Amazon.de—launched its Sporting Goods store, offering customers a selection of thousands of sporting goods in over 25 categories from top brands like Adidas, Burton, Nike, Puma, Quiksilver and Salomon. The Company extended its Enterprise Solutions agreement with Target.com through August 2010 and launched a new Sears Canada branded website providing Sears Canada with the tools and services to control its brand, merchandising and online business using Amazon Enterprise Solutions technology. Amazon S3, a simple storage service for software developers, gained momentum in its first full quarter after launch, providing businesses of all sizes— from Microsoft to SmugMug—with a web services solution for storing and retrieving any amount of data, at any time, from anywhere on the web. Developers continue to adopt Amazon’s web services—over 180,000 have registered to date, up greater than 60% year-over-year.