Amazon.com executives painted a bright future at the company's annual analyst meeting Tuesday, repeating projections that the online retail giant remains poised to turn a pro forma profit in the fourth quarter of this year.
The pro forma profit excludes a range of costs, such as interest on Amazon's more than $2 billion in debt and acquisition charges. Chief Financial Officer Warren Jenson said that the company is well positioned for profitability for the year 2002 but noted, "there can never be guarantees."
Amazon management understands this is a crucial time, as analysts and investors continue to await profitability from the Web’s biggest online retailer after more than five years of mounting losses. Meanwhile shareholders are hoping for some reprieve from a stock that has plummeted more than 70 percent in the last year.
At the meeting, Jenson said he was comfortable with Amazon's recent financial performance, where gross margins and inventory turns continued to rise. He also stressed the potential for growth in Amazon’s international business, which currently accounts for 19 percent of total sales. Amazon's international businesses posted a $145 million pro forma operating loss in 2000 on $381 million in sales.
"We’re really just beginning to tap the global market…as we drive for growth in Europe and Japan," Jenson said.
Amazon also announced the launch of a new store, and said the company would start selling personal computers in the second half of the year, despite sluggish sales in the overall PC market.
So far, Amazon's core books business has been its only moneymaking division. But management is clearly set on boosting the fast-growing consumer electronics store by selling to Amazon’s 30 million customers.
Wall Street's reaction to Tuesday’s analyst meeting was mostly upbeat.
Goldman Sachsanalyst Anthony Noto called 2001 a turning point for Amazon. "We believe that Amazon's results should largely get better throughout the remaining quarters of 2001," he wrote in a report.
Thomson Financial/First Call research analyst Ken Perkins explained that the investment community has shown growing concern about Amazon’s low profit margin businesses.
"The investment community wants to see them get into a business where margins can be substantially increased," says Perkins. "What was said at today’s meeting was not earth-shattering news but a step in the right direction, nonetheless."
Perkins said analysts polled by Thomson Financial/First Call are still looking for Amazon to lose 7 cents in the fourth quarter and 33 cents in 2002. If Amazon came through on its projected profitability, it would be a pleasant surprise for most analysts, who don’t expect profitability until fourth quarter 2002.
"We may see some changes in how Wall Street is reacting to the stock going forward," says Perkins. "If Amazon is showing momentum in generating a profit, then that’s definitely an improvement and certainly a positive sign."
Amazon’s latest meeting comes at a time when Wall Street analysts are pondering the company's financial prospects.
Earlier this year, the New York Society of Security Analysts criticized the Amazon's financial reporting methods, accusing the company of focusing on imprecise data such as customer traffic counts and "pro forma" profits. Pro forma numbers exclude the company's interest payments on its debt as well as other noncash charges.
Criticism mounted when former Lehman Brothersanalyst Ravi Suria accused Amazon of misleading investors when it claimed to have more than $1.36 billion in total assets at the end of last year. Suria said Amazon finished the quarter with more than $975 million in outstanding short-term debt, money that must be paid some time this year.
At a meeting in late May, Amazon.com Chief Executive Jeff Bezos responded by emphasizing that most of Amazon's debt is not due until 2009, which he said is likely to give the company enough time to pay it off.
Amazon attempted to further appease Wall Street critics by offering more detailed information about its pro forma results on its last earnings report.
Speaking at a shareholder meeting in May, Bezos also said that Amazon is considering expanding its board of directors, but there has been no indication of immediate plans to do so.
Shares of Amazon.com were down about 35 cents or just over 2 percent to $16.56 per share, ahead of the analyst meeting and fell steadily as the meeting progressed. The stock is off more than 70 percent from its 52-week high of $56.25.