Amazon Cuts Fees After Posting First Profit

Amazon.com has reported its first-ever net profit, and is inviting customers to also celebrate by permanently offering free shipping for all orders over $99.

The fourth-quarter 2001 results released Tuesday were buoyed by brisk holiday sales and a significant reduction in operating costs. Amazon.com beat expectations set by analysts, allowing it to set a goal of positive operating cash flow for the full year 2002.

"This was a record quarter and one that allowed us to hit on all four cylinders," said Warren Jenson, Amazon chief financial officer.

Amazon reported fourth-quarter sales of $1.12 billion, compared to $972 million for the same period in the previous year, a 15 percent increase. Net profit for the quarter total $5 million, or 1 cent per share, against a net loss of $545 million, or $1.53 per share a year earlier.

Courting Customers

Company executives pin the quarterly success not only on a reduction of operating costs, but also on retaining customers and luring new ones through low book prices.

"We've lowered book prices to what would be a ridiculous level in the physical world," said Jenson, speaking in a conference call Tuesday.

Prices and shipping fees are the two factors holding back the company's acquisition of more customers, Jenson added. With product prices already lowered, Amazon is now focused on easing shipping fees, he said.

The result is its new Super Saver Shipper program, which permanently offers free shipping on all orders of more than $99. This extends a deal that was previously offered only during the holiday season.

"This is a big deal and very expensive for us," said Amazon founder and Chief Executive Officer Jeff Bezos of the shipping offer. "We are making a bet."

The company also reported pro forma net profit, exceeding expectations Bezo had set. He said earlier that Amazon.com would just break even by the fourth quarter. The pro forma results exclude non-operational, non-cash charges, and benefits, as well as one-time charges, the company said.

Pro forma net profit tallied $35 million, or 9 cents per share, compared with a net loss of $90 million, or 25 cents per share a year earlier.

Optimistic Report

A survey of analysts polled by Thomson Financial/First Call predicted a pro forma loss of 7 cents per share, meaning that Amazon exceeded expectations by a whopping 16 cents per share.

Bezos also wagered that the company would reach positive operating cash flow for the full year 2002.

Although the Amazon founder conceded that "this objective will be difficult to achieve," he also said that the company was "focused like a laser" on lowering prices and increasing productivity.

For the full year of 2002, the company expects net sales to grow by 10 percent or more, and pro forma income from operations of at least $30 million.

Amazon also released its guidance for the first quarter of 2002, predicting net sales of between $775 million and $825 million, representing growth of between 11 percent and 18 percent. Amazon also expects to post a pro forma loss from operations of between breakeven and $16 million.

"This quarter Amazon solidly put a stake in the ground as far as our business model and our objective of profitability," said Jenson.