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Originally published Wednesday, October 25, 2006 at 12:00 AM

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Amazon sees substantial drop in profit, but beats expectations

Amazon.com's stock surged 14 percent in after-hours trading Tuesday as the Internet retailer beat analysts' earnings expectations, even...

The Associated Press

Amazon.com's stock surged 14 percent in after-hours trading Tuesday as the Internet retailer beat analysts' earnings expectations, even though its third-quarter profit fell 36.7 percent.

The Seattle-based company reported a profit of $19 million, or 5 cents a share, for the three months ended Sept. 30, down from $30 million, or 7 cents a share, in the same period a year earlier.

Sales for the quarter rose 24.2 percent to $2.31 billion.

Analysts polled by Thomson Financial, on average, expected earnings of 3 cents a share on revenue of $2.25 billion.

The results, released after the stock market closed, pushed Amazon shares up $4.72 to $38.35 in extended trading.

"I think it was probably a little bit of relief," analyst Dan Geiman with McAdams Wright Ragen said of the stock surge.

Last quarter, Amazon shares plummeted after the company disappointed investors with a drop in earnings it attributed to cheap or free shipping deals and increased technology spending.

Amazon pledged to curtail the growth of technology and content spending, but Geiman said some analysts wondered whether they could keep that promise. Tuesday's results showed they could, he said.

Technology and content spending as a percent of Amazon's sales was 7.5 percent in the third quarter, less than the 7.8 percent rate in the previous quarter, Amazon said.

Still, the Internet retailer made clear it plans hefty investments in those fields.

Chief Financial Officer Tom Szkutak said in a conference call that the drop in quarterly earnings was partly because the company continued such spending during the quarter.

Amazon has launched new initiatives, including the Amazon Unbox digital video-download service, amid efforts to counter an ever-growing group of online rivals.

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Szkutak said the online retailer also is working on other Web-site improvements.

Amazon told analysts it expects to spend more money on technology and content, but that the growth in such spending should slow.

Szkutak said lower prices and wider selection helped drive sales growth beyond expectations in the quarter.

Amazon also narrowed its sales guidance for the full year.

The company said it expects to see sales for the 12-month period between $10.35 billion and $10.68 billion, compared with previous guidance of between $10.15 billion and $10.65 billion.

For the all-important fourth quarter, the company expects sales to reach $3.63 billion to $3.95 billion.

For the nine months ended Sept. 30, Amazon.com said it earned $93 million, or 22 cents a share, compared with $160 million, or 38 cents a share, a year earlier.

Sales for the nine months were $6.73 billion, compared with $5.51 billion a year ago.

Information from Bloomberg News is included in this report.

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