Amazon grows sales 23% in 2005, but profits slide
Amazon once more turned in sales numbers that cement its ranking as the world’s biggest online retailer. In 2005, Amazon recorded total sales of $8.5 billion, up 23% from $6.9 billion in 2004. It had net income of $359 million compared to $588 million.
In 2005, Amazon, No. 1 in the Internet Retailer Top 400 Guide to Retail Web Sites, also took a number of steps to grow its mushrooming retail base. For instance, Amazon Prime, Amazon’s first-ever membership program, was introduced in February 2005. For a flat membership fee of $79 per year, Amazon Prime members get unlimited, express two-day shipping for free, with no minimum purchase requirement. "Subscriptions to Amazon Prime more than doubled from November to December," says founder and CEO Jeff Bezos. "Amazon Prime members get `all-you-can-eat` two-day shipping for free."
For the fourth quarter, Amazon increased sales 17% to $2.98 billion compared with sales of $2.54 billion in Q4 2004. Net income was $199 million in Q4 2005 compared with net income of $347 million from the same quarter in 2004. In 2005, overseas sales accounted for 45% of total sales, up slightly from 44% in 2004.
In 2006, Amazon is projecting that its sales will range from $9.85 billion to $10.45 billion.
Despite the fact that Amazon reported lower net income for both the fourth quarter and the full year, the news didn`t surprise Wall Street analysts. "There was little new in Amazon`s quarter or guidance as both followed Amazon`s trend for the past several quarters, which is to meet guidance and lower margin expectations," says Safa Rashtchy, a senior research analyst with Piper Jaffery, in a recent research brief.
Piper Jaffery expects Amazon to continue to spend as much as 6% of total revenues on new technology and content, which will have an ongoing impact on profit margins. "While this may be a slower increase than we saw in 2005, this takes Amazon further away, not closer, to its goal of double-digit margins," Rashtchy says.
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