After losing money for the first nine months of 2002, Amazon.com is gearing up to post what analysts expect to be a tidy profit for the seasonally strong final quarter of the year.
According to forecasts from Wall Street analysts, the Net retailer will report both rising sales and a bigger holiday-season profit compared with last year, when it reports earnings Thursday afternoon.
"We don't expect a big blowout, but we do expect a very solid quarter," said Shawn Milne, analyst at SoundView Technology Group, one of several firms that oversees bid and offer prices for Amazon (AMZN) shares in order to maintain a market for the stock.
Milne predicts the company will earn a profit of 15 cents a share in the last three months of 2002. The consensus estimate among analysts surveyed by First Call expects Amazon to post a profit of 14 cents a share, excluding one-time charges, on sales of $1.4 billion.
The optimistic forecasts for Amazon come on the heels of an unimpressive holiday season for most retailers, given the slow economy and shorter-than-usual shopping season. Many analysts, however, expect that online merchants outperformed their offline counterparts, as more shoppers grew accustomed to the Web as a retail medium.
"In the face of a very tough economy, e-tailers did very well," said Lisa Strand, an analyst at Web audience measurement firm Nielsen/NetRatings.
In the months of November and December, Nielsen/Netratings reported that online holiday spending increased 24 percent compared with last year, excluding travel purchases. Among online retailers, Amazon was the uncontested leader, drawing 41 million unique visitors in the United States in December alone.
At Amazon, sales volumes also benefited from promotions, including free shipping on orders more than $25 and a 30 percent discount on books priced more than $15. But while such offers have raised revenues, Amazon critics say deep discounts have the opposite effect on profit margins.
So far, the discount promotions have had no negative effect on Amazon's stock price, which has risen sharply over the past year. The stock closed Tuesday at just over $21. A year ago, it was trading for just over $12.
But skeptics question whether Amazon's lofty stock valuation has much room to rise.
Even Milne, who rates the stock an "outperform," sees limited potential for a further rise, with a 12-month price target of $22 to $24, providing the company maintains an annual growth rate of around 15 percent.
Meanwhile, Prudential Securities, which has a "sell" rating on the stock, predicts Amazon shares will dip to $10 in the next year.
Amazon detractors have only to point to the company's balance sheet and record of losses to bolster their case. The company has reported a profitable quarter only once, for the last three months of 2001. As of October, Amazon had a long-term debt load of $2.26 billion and accumulated deficit of $3 billion.
Amazon's hefty debt load has made it a popular target among short-sellers, who sell borrowed shares of stock in an attempt to profit when the stock price declines. As of December, close to 20 percent of Amazon's publicly traded shares were in the hands of short-sellers, down significantly from a year ago.
Amazon, for its part, is predicting that its growth rate will remain strong this year. The company said it expects to report a pro forma operating profit of $200 million for 2003, which does not include one-time charges and the costs of servicing its debt.
