updated 10/25/2006 12:31:39 PM ET 2006-10-25T16:31:39

Internet retailer Amazon said Tuesday its third-quarter earnings fell by about a third, but the company still managed to beat analysts' expectations, sending shares surging more than 14 percent.

The company attributed the drop in earnings primarily to investments in technology and content, but investors appeared relieved that such investments weren't even heftier.

The Seattle-based company reported net income of $19 million, or 5 cents per share, for the three months ended Sept. 30. That compares with earnings of $30 million, or 7 cents per share, in the same period a year earlier.

Sales for the quarter rose 24 percent to $2.31 billion, after climbing 27 percent to $1.86 billion in the year-ago quarter.

Analysts surveyed by Thomson Financial were expecting earnings of 3 cents per share on average, on revenue of $2.25 billion.

"I think it was probably a little bit of relief," analyst Dan Geiman with McAdams Wright Ragen said of the stock price surge.

Last quarter, Amazon shares plummeted after the company disappointed investors with a drop in earnings it attributed to cheap or free shipping deals and increased technology spending.

Amazon pledged to curtail the growth of technology and content spending, but Geiman said some analysts wondered whether they could keep that promise. Tuesday's results showed that they could, he said.

Still, the Internet retailer made clear that it plans hefty investments in those fields.

In a conference call with journalists, Chief Financial Officer Tom Szkutak said the drop in quarterly earnings was primarily because the company continued such spending during the quarter. Amazon.com has launched several new initiatives lately, including the Amazon Unbox digital video download service, amid efforts to counter an ever-growing group of online competitors.

Szkutak said the online retailer also has been working on other improvements to the customer experience on its Web site.

Amazon told analysts that it expects to spend more money on technology and content, but that the growth in such spending should slow.

Szkutak said lower prices and expanded selection helped drive sales growth beyond expectations in the most recent quarter.

Amazon.com also narrowed its sales guidance for the full year. The company said it expects to see sales for the 12-month period to be $10.35 billion to $10.68 billion, compared with previous guidance of $10.15 billion to $10.65 billion.

For the all-important fourth quarter, in which sales are fueled by holiday spending, the company is expecting sales of $3.63 billion to $3.95 billion.

The company also said that it had repurchased about eight million shares of its stock, worth about $252 million.

For the nine months ended Sept. 30, Amazon.com said it earned $93 million, or 22 cents per share, compared with $160 million, or 38 cents per share, in the same period a year earlier.

Sales for the nine-month period were $6.73 billion, compared with $5.51 billion a year earlier.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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