Amazon.com reported that sales growth for the entire company and for the book/music/ video segment exceeded expectations for the fourth quarter, and the company had delivered on its promise to post pro forma operating income in the period. Revenues in the b/m/v group increased 5.3% in the quarter, to $538 million, while total company sales rose 14.7%, to $1.12 billion. Pro forma operating profit was $59 million in the quarter, compared to a loss of $60 million in last year's fourth quarter. Even using more traditional accounting methods, the company had net income of $5 million in the quarter, compared to a loss of $545 million in the last quarter of 2000. In the b/m/v group, pro forma operating income rose 63.4%, to $63.9 million. Analysts were delighted with the results, using terms such as "spectacular," "awesome" and "knocking the cover off the ball" to describe the quarter.
Amazon chairman Jeff Bezos and chief financial officer Warren Jenson both attributed the improved results to productivity gains and lower pricing, which combined to help boost unit sales by 23% in the quarter. Jenson said the b/m/v group "demonstrates what we hope to accomplish" throughout the company. He explained that Amazon built a profitable b/m/v business using "every aspect of our model—broad selection, high inventory turns and innovative technology." Unit sales rose by about 12% in the period, and the group had an operating margin of 11.8%. Lower prices, "outstanding" sell-through of used items (which accounted for 15% of unit sales), the success of assuming responsibility for Borders.com and, most importantly, lower prices all contributed to the revenue gain in the quarter, Jenson said. "We've lowered book prices to what would be ridiculous levels in the physical world," Jenson told analysts.
In the third quarter, sales in the group fell 12.1%, causing analysts and others to wonder if growth in the group had hit a wall. With the "reacceleration" of growth, the b/m/v experience proves that lower prices build volume, causing unit costs to decline and margins to expand, Jenson claimed.
To help boost sales across the company, Amazon has introduced a new shipping policy. Under the program, the company will not charge for shipping on orders of at least $99. Bezos maintained that Amazon's discount policy—under which books priced at more than $20 receive a 30% discount—combined with the new shipping offer makes the e-retailer's book prices "really, really low. If you're not buying books from Amazon, you're wasting money."
Looking ahead to 2002, Amazon is expecting total sales to grow by at least 10% in the year with faster unit growth. The bottom-line goal is to achieve positive operating cash flow in the year and possibly free cash flow. Capital expenditures are projected to be about $75 million, and there are no plans to open new distribution centers in the year.
For all of 2001, sales in the b/m/v group fell slightly to $1.69 billion from $1.70 billion. Pro forma operating income shot up to $156.7 million from $71.4 million. For the entire company, sales increased 13%, to $3.12 billion, and its actual net loss was cut from $1.4 billion to $556.7 million.