ajtj99's Market Pulse

[madrose1]

Amazon's profit picture still a worry
( compliments of Joe Stocks )

By Bambi Francisco, MarketWatch
Last Update: 11:11 AM ET Feb. 1, 2006


SAN FRANCISCO (MarketWatch) - When Amazon.com reports fourth-quarter results after the close Thursday, analysts expect the company to post strong revenue, while showing that it remains challenged to improve profitability.

The stock has climbed only modestly from the $39 a share level it reached after the retailer reported third-quarter results Oct. 25. See Amazon's Q3 report.

Wednesday morning, Amazon.com traded down 2% at $44.

In order for the stock to move, Amazon will have to demonstrate that it's able to keep costs under control.

Once again, analysts will want to know how Amazon can make and increase profit, while maintaining its offer free shipping promotions. "We believe that free shipping programs, including Amazon Prime, had a much greater negative impact to Amazon's gross margins than we'd originally anticipated," noted Bear Stearns' Robert Peck.Additionally, analysts may seek some insight into whether Amazon plans to offer digital downloads of movies. Variety magazine reported that Amazon.com is preparing to enter the digital download business this spring, according to Stifel Nicolaus analyst Scott Devitt.

For 2006, analysts expect Amazon earnings to rise 62% to 95 cents a share, on an 18% increase in sales to $10.14 billion.