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EcommerceBytes-NewsFlash, Number 1650 - October 25, 2007 - ISSN 1539-5065    2 of 3

Amazon.com Releases Q3-07 Financials, Focused on Toys for Holidays

By Ina Steiner
EcommerceBytes.com
October 25, 2007




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Amazon.com announced financial results for its third quarter ended September 30, 2007. Net sales increased 41% to $3.26 billion in the third quarter, compared with $2.31 billion in third quarter 2006. Excluding the $75 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 38% compared with third quarter 2006.

Operating income increased 207% to $123 million in the third quarter, compared with $40 million in third quarter 2006. Net income increased 313% to $80 million in the third quarter, or $0.19 per diluted share, compared with net income of $19 million, or $0.05 per diluted share in third quarter 2006.

Amazon expects net sales for the fourth quarter to be between $5.1 billion and $5.45 billion, or to grow between 28% and 37% compared with fourth quarter 2006.

Worth noting, the company said over 290,000 developers have registered to use Amazon Web Services (AWS), up 25,000 from the prior quarter.

Amazon hosted a conference call with analysts on Tuesday (http://phx.corporate-ir.net/phoenix.zhtml?p=irol-irhome&c=97664).

In answering a question about Amazon's Merchants@ program that lets third-party sellers list products on the site, Amazon CEO Jeff Bezos made special mention of the toy category. "This is going to be, by far, our best customer experience in the toy category in the company's history. And it is not only Amazon retail toys, but there is also now a very strong network of third party toy sellers in the toy category. The combination of those is providing an outstanding customer experience. That will be part of our record holiday, and we're really excited about it."

Amazon.com first launched its Toy store in July 2006 after Toys"R"Us exited the platform and Amazon invited third-party sellers to list items. But each year, it places restrictions on third-party sellers in the Toys & Games category during the holiday shopping season. (http://www.auctionbytes.com/cab/abn/y07/m08/i20/s02).

Merrill Lynch estimated third-party unit sales outstripped Amazon's regular unit growth ("we have it at over 40%") in a question about gross margins. Amazon.com CFO Tom Szkutak said "our third party business in general helps our gross margins, and certainly other factors to think about when you look at our gross margins are, we continue to lower prices for customers, we continue to try to make sure we get great prices from suppliers and also mix of business."

JP Morgan asked how Amazon ensures customer satisfaction as the number of third-party sellers grows and the third-party business becomes a bigger part of Amazon's business.

Jeff Bezos said, "We've done a lot over time to maintain that customer experience. It starts with making sure that we have a good method of evaluating third-party sellers and making sure that they are sincere and want to do a great job for customers. We have a big team of people that do that. The other thing is we have started something called Fulfillment by Amazon, which is getting a lot of early traction, growing rapidly. It allows third-party sellers to effectively let us do the fulfillment for them so they can, using Fulfillment by Amazon, send products directly to our fulfillment centers and then we do the packing and shipping directly to customers."

Amazon executives also talked quite a bit about Amazon Prime, its program that allows customers to get unlimited free two-day shipping on all orders for an annual fee of $79.

A transcript of Amazon.com's conference call is available on Seeking Alpha:
http://seekingalpha.com/article/51028-amazon-com-q3-2007-earnings-call-transcript

About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

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