Amazon Q3 sales up; losses narrower than forecast Inc. yesterday reported a third-quarter loss of 25 cents per share, handily beating the analysts' consensus estimate of a 33-cent-per-share loss.

As part of its earnings report, Amazon announced that the Securities and Exchange Commission (SEC) had launched an informal inquiry into its accounting treatment of its partnerships with other electronic retailers, as well as its disclosures.

Amazon reported a pro forma operating loss of $68 million for the quarter ending Sept. 30, compared with a loss of $78 million in the third quarter last year. The 25-cent loss for the quarter was a penny better than the 26-cents-per-share loss posted for the same quarter last year. The analysts' projections were arrived at in a poll of 29 analysts by First Call/Thomson Financial.

The Internet company that sells just about everything moved plenty of merchandise in the third quarter, with $638 million in sales for the period. The sales figure significantly edged out, by 79%, last year's third-quarter total sales of $356 million. The vendor also said the quarter's 26% gross margin outperformed last year's 20% gross margins.

"This was a great quarter for us at Amazon," said Warren Jenson, chief financial officer at Amazon, during a conference call with press and analysts following the earnings announcement. "While the markets were pessimistic, our customers were not."

Amazon said its electronics store grew during the quarter to surpass the music segment and now stands as the company's second-largest revenue generator in the U.S. The books market still leads overall sales for the Seattle-based company.

"This was a strong quarter for; we are driving toward profitability, and we surpassed our key internal operational and financial objectives," Jenson said in a statement.

Amazon also said international sales grew 121% for the quarter to reach $88 million. The company added 800,000 international customers, mostly in Europe.

Jeff Bezos, CEO and founder of Amazon, pointed to European expansion along with several other factors as reasons for maintaining a positive outlook for his company, which remains far away from posting a profit. He noted that while the company closed its video game and camera stores in the U.S., Amazon will make a go of it in both the UK and Germany in the video game and software markets.

"The early returns from our European distribution centers are excellent." Jenson said. However, he also said that Amazon doesn't plan to open any more distribution facilities in the U.S. for some time.

"From the beginning, we have built our business on the single principle that customers go where they get value," Bezos said on the conference call.

Bezos said he was pleased to announce that 21% of active customers purchased items outside of Amazon's mainstay book, video and music categories. He pointed again to the recent success of the electronics store at Amazon as an example of one of the up-and-coming markets for the company.

"In September, six of the top 10 items [sold online at Amazon] were electronics products," he said. "In only a year, electronics has become our second-largest business."

Bezos added that the company has worked hard to lower inventory while still expanding product selection.

Barrett Ladd, an analyst at Gomez Advisors Inc. in Lincoln, Mass., said it was encouraging that the company was expanding outside its core business.

However, she cautioned, the challenge for the company is how it continues to maintain its relationship with various vendors to continue offering a wide range of products on its Web site.

Amazon will try to strike it big during the holiday season, and plans to attack consumers with e-mail, advertisements and marketing materials included with packages from the company to help drive year-end business, officials said.

The company said it expects sales for the fourth quarter of between $950 million and $1.05 billion.

Amazon's shares ended the regular trading day Tuesday at $29.56, down 1.46%. The results were announced after U.S. markets closed.

Despite Amazon's upbeat approach to its earnings report, Sara Farley, an analyst at PaineWebber Inc. in New York, said her company wasn't changing its neutral opinion of Amazon's stock, saying it was still projecting a high-price target of $30 per share.

"The level of revenue growth is not a slam dunk," she said.

In explaining the SEC inquiry, Amazon said that last fall, the company set up its Amazon Commerce Network, through which it develops new strategic relationships with third parties in order to offer its customers more products and services. Amazon said it invested in some of these companies and received securities from others in payment for services.

In a statement, Amazon said it had responded to the SEC's informal inquiries. In addition, Amazon said it reviewed its own accounting practices in this area and believes that its accounting treatment and disclosures were appropriate.

According to Farley, because this is an informal inquiry, it's too early to tell what impact, if any, it would have on the company.

"But if Amazon is forced to change its accounting practices, it could have an impact," she said.

Ashlee Vance is a reporter for the IDG News Service.

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