Amazon.com Announces Third Quarter Sales up 41% Year over Year - Raises Financial Guidance - Expects Record Holiday Season

Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its third quarter ended September 30, 2007.

Operating cash flow was $1.0 billion for the trailing twelve months, compared with $587 million for the trailing twelve months ended September 30, 2006. Free cash flow was $800 million for the trailing twelve months, an increase of 118% compared with $366 million for the trailing twelve months ended September 30, 2006.

Common shares outstanding plus shares underlying stock-based awards outstanding totaled 435 million on September 30, 2007, unchanged from a year ago.

Net sales increased 41% to $3.26 billion in the third quarter, compared with $2.31 billion in third quarter 2006. Excluding the $75 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 38% compared with third quarter 2006.

Operating income increased 207% to $123 million in the third quarter, compared with $40 million in third quarter 2006.

Net income increased 313% to $80 million in the third quarter, or $0.19 per diluted share, compared with net income of $19 million, or $0.05 per diluted share in third quarter 2006.

“Customers continue to respond to our low prices, our free shipping, and the benefits of Amazon Prime. With our ever-increasing selection, customers are now getting this unusual level of service across many different product categories and with depth of selection in each category,” said Jeff Bezos, founder and CEO of Amazon.com. “In our view, putting customers first is the only reliable way to create lasting value for shareowners.”

Highlights


North America segment sales, representing the Company’s U.S. and Canadian sites, were $1.79 billion, up 42% from third quarter 2006.
International segment sales, representing the Company’s U.K., German, Japanese, French and Chinese sites, were $1.47 billion, up 40% from third quarter 2006. Excluding the favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, International net sales growth was 33%.
Worldwide Media grew 36% to $2.09 billion in third quarter 2007, compared to $1.54 billion in third quarter 2006.
Worldwide Electronics & Other General Merchandise grew 54% to $1.08 billion in third quarter 2007 and increased to 33% of worldwide net sales compared with 30% in third quarter 2006.
The Company sold 2.5 million copies of Harry Potter and the Deathly Hallows worldwide, making it Amazon’s largest new product release.
The Company launched a public beta of Amazon MP3, a digital music store with Earth’s biggest selection of a la carte DRM-free MP3 music downloads. Amazon MP3 has over two million songs from more than 180,000 artists represented by over 20,000 major and independent labels.
Amazon Europe launched a Shoes store and a Baby store on the amazon.co.uk and amazon.de websites, offering customers tens of thousands of items from hundreds of leading brands.
Amazon Europe launched a Home & Kitchen store on the amazon.fr website, offering customers thousands of items from well-known electrical appliance and kitchenware brands.
Amazon.co.jp opened an Apparel & Shoes store offering more than 30,000 items from more than 100 well-known brands.
Fulfillment by Amazon launched in beta on the amazon.co.uk, amazon.de and amazon.co.jp websites, giving small and medium-sized businesses access to Amazon’s fulfillment, customer service, and underlying website technology.
Over 290,000 developers have registered to use Amazon Web Services (AWS), up 25,000 from the prior quarter. AWS also launched a limited beta version of the Amazon Flexible Payments Service (FPS). Amazon FPS is the first payments service designed from the ground up specifically for developers, and provides unprecedented flexibility in the movement of money through a set of web services APIs.
AWS recently introduced several new compute instance types for the Amazon Elastic Compute Cloud, which provide up to eight times more memory, CPU, and storage, enabling developers to support an even broader set of applications.
Amazon Simple Storage Service (S3) continues to be rapidly adopted by developers, and objects in storage have doubled to more than ten billion during the last six months. In addition, we have instituted a Service Level Agreement for Amazon S3 that guarantees operational performance levels.

Financial Guidance

The following forward-looking statements reflect Amazon.com’s expectations as of October 23, 2007. Results may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, and the various factors detailed below.

Fourth Quarter 2007 Guidance


Net sales are expected to be between $5.1 billion and $5.45 billion, or to grow between 28% and 37% compared with fourth quarter 2006.
Operating income is expected to be between $221 million and $291 million, or grow between 12% and 48% compared with fourth quarter 2006. This guidance includes $54 million primarily for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional intangible assets are recorded and that there are no further revisions to stock-based compensation estimates.

Full Year 2007 Expectations


Net sales are expected to be between $14.263 billion and $14.613 billion, or to grow between 33% and 36% compared with 2006.
Operating income is expected to be between $605 million and $675 million, or grow between 56% and 74% compared with 2006. This guidance includes $191 million primarily for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional intangible assets are recorded and that there are no further revisions to stock-based compensation estimates.

A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results.

These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services and technologies, system interruptions, significant indebtedness, government regulation and taxation, payments and fraud. More information about factors that potentially could affect Amazon.com’s financial results is included in Amazon.com’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2006, and all subsequent filings.