Amazon CEO Jeff Bezos said he is confident that as more media products are sold in digital formats, e-tailers that offer a positive consumer experience will continue to be profitable. Amazon, Bezos said, is "well positioned" to capture a bigger part of media sales as those sales move away from physical products (and stores) into the digital realm.
To ensure that Amazon is ready for the digital future, the company continues to invest heavily, spending $451 million last year on technology and content. The high cost of investment, coupled with increased shipping expenses tied to its Amazon Prime offer, resulted in a 1.8% decline in operating income in the year, to $432 million, despite a 22.7% increase in sales, to $8.49 billion. North America media sales, which includes books, rose 17.6% in the year, to $3.05 billion. The ongoing steep investment by Amazon has some analysts concerned that Amazon's operating margins will stay thin, close to those of its bricks-and-mortar competitors, rather than approach the fatter margins of other Internet stocks, such as Google. Amazon's operating margin in 2005 was 5.1%.
Bezos told analysts in a conference call discussing year-end results that while it was "premature" to talk about when the company's digital efforts will yield dividends, he said that "over the next couple of years you could see the utilization of our cost structure." Among the digital initiatives touted by Amazon were Amazon Pages and Amazon Upgrade, although the company gave no hint as to when those book-related projects may go live.
On the tax front, Amazon CFO Tom Szkutak said there was "nothing new" on the effort by a group of states to collect sales tax from Web retailers. At present, Amazon collects sales tax only in states where it has a physical presence. Szkutak maintained that in those states, there is little difference in consumer buying habits from states where it does not collect tax.