Amazon third quarter sales beat bodes well for holidays

Reuters

* Shares rise in after-hours trade

* Forecasts sales of up to $26.5 bln in second quarter

By Edwin Chan

Oct 24 (Reuters) - Amazon.com Inc posted a narrowerquarterly loss and grew sales by a better-than-expected 24percent on Thursday as it expanded aggressively at home and madeinroads overseas, sending its shares up 8 percent.

The revenue performance indicated strong momentum of theworld's largest Internet retailer going into the crucial U.S.holiday season, which some experts say could be the slowest inyears.

Rival Ebay Inc gave a disappointing holidayforecast last week, saying the U.S. economic environment,including consumer confidence, had deteriorated in part becauseof the U.S. government shutdown.

Amazon forecast sales of between $23.5 billion to $26.5billion, which analysts called conservative.

"It'll be a somewhat difficult macro environment in thefourth quarter," said Morningstar analyst R.J. Hottovy. "But itlooks like the revenue momentum will continue into the fourthquarter."

Much of that growth came from its home market, where netsales leapt 31 percent to $10.3 billion as a faster delivery bya growing network of distribution or fulfillment centers drovecustomer demand, Amazon said. International sales also expanded15 percent, up from 13 percent in the previous quarter.

Amazon is trying to turn itself from an online retailer intoa broader technology company offering gadgets like tablets toconsumers and cloud computing services to corporations andgovernments.

The evolution has entailed big investments in technology,and content such as videos and music, and all while buildingdistribution centers across the United States and expanding incompetitive overseas markets such as China. Its Kindle Firetablets went on sale this month and will compete with AppleInc's iPad and Microsoft Corp's Surface.

It is spending billions of dollars to expand and that hastaken a toll on earnings. But investors believe the move willpay off as the spending tapers and margins expand.

Net loss was $41 million in the third quarter, or $0.09 perdiluted share, narrowing from a net loss of $274 million, or$0.60 per diluted share, in the third quarter of 2012.

Executives said they will continue to invest in distributionabroad and on buying and creating content for the Instant Videoservice, which has helped drive the success of Prime, its$79-a-year, two-day shipping service that also offers free videostreaming.

Amazon grew Prime members, who typically spend more on goodsof all kinds, by several million in the past 90 days, executivessaid without elaborating. Expanding free-streaming video is alsoattracting Prime members.

"It's helping the Prime membership increases that you'reseeing, and we think it's interesting and we're investingthere," Chief Financial Officer Tom Szkutak told analysts on aconference call.

HOLIDAY PREP

Amazon becomes the latest tech name to have outperformed inan otherwise dreary earnings season. about 84 percent oftechnology companies that have reported so far have beat onearnings, and 63 percent on revenue.

It posted revenue of $17.1 billion in the third quarter, upfrom $13.8 billion a year earlier. Analysts had expected it topost sales of $16.8 billion on average.

Amazon's gross profit margin - a closely watched measure ofearnings that excludes several expenses - was 28.6 percent inthe second quarter, one of the highest in over a decade byanalysts' reckoning.

Third-quarter profit margins came in about 27.6 percent, inline with what analysts had expected and down from the previousquarter as Amazon ramped up investments in preparations for theholidays.

Data firm ShopperTrak has forecast the slowest holiday salesgrowth since 2009, and last week, September retail sales showedU.S. shoppers were cautious, following a disappointing secondquarter for many retailers. But unlike eBay, Amazon soundedupbeat on the coming shopping season.

"We're getting ready for an exciting holiday season and thatincludes having to make sure we have the right amount ofemployees, the right capacity in place," Szkutak said.

Shares in the company have gained 30 percent this year. Itis now valued at 131 times 2014 earnings, among the highest inthe market. In after-hours trading on Thursday, Amazon sharesclimbed to about $360 from a close of $332.21 on the Nasdaq.

"The takeaway is that the third-quarter sales shows that theAmazon value proposition is striking a chord with consumers,"Hottovy said.

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