Amazon Out of the Woods?

Back on January 21, Amazon had expected to report its first profit — a pro forma profit that would exclude many costs included in regular accounting and is often seen as a controversial method of creating good news where there may be none. Amazon has maintained that pro forma accounting is more appropriate for its business model.

However, Amazon posted a $5 million (1 cent per share) profit the very next day using standard accounting methods. Amazon used GAAP (Generally Accepted Accounting Principles), which is considered quite an accomplishment for a company often viewed as the poster boy for creative accounting.

Wall Street tracking firm Thomson Financial/First Call had expected Amazon to post a pro forma net loss of between 4 and 8 cents a share, compared to a loss of 25 cents a share ($90 million, pro forma) a year ago. Amazon’s GAAP losses last year were $545 million, or $1.53 per share.

Amazon was able to cut its operating costs in half this past quarter, which allowed for lower prices on core products, resulting in higher sales volume. Free shipping on orders over $99 (originally a holiday special, but permanent as of today) as well as bundled products are credited with some of that volume, according to Bezos. Licensing its e-commerce package to Target and Toys R Us probably hasn’t hurt, either. International sales were up 81% from last year, with the Germany and United Kingdom offices breaking even.

Amazon is still in debt to the tune of $2.2 billion ($120 million a year in interest alone), although that debt does not come due until 2008. Amazon is projecting first quarter sales between $775 million and $825 million, with $810 million in liabilities in the fourth quarter, meaning that profit is already earmarked and unable to pay down its debt.

Amazon Out of the Woods?

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