Amazon.com last night posted a 32pc drop in quarterly profit due in part to higher tax expenses, but the online retailer beat Wall Street targets as a new discount shipping program, although costly, drove sales higher.
Shares rose nearly 11 per cent in after-hours trade. Amazon forecast third-quarter sales above some analysts' targets, and profit margins rose due to an increase in business from independent sellers who offer their wares on the site.
Second-quarter net income fell to $52 million, or 12 cents per share, from $76 million, or 18 cents per share a year earlier. The company also took a $56 million non-cash tax expense during the quarter.
Sales rose to $1.75 billion from $1.39 billion a year earlier as the company continued to lower prices and shoppers increasingly took advantage of Amazon's free and discount shipping offers. Analysts on average had expected net income of 8 cents per share and revenue of $1.73 billion, according to Reuters Estimates.
The company unveiled Amazon Prime in February amid investor and analyst concern that the program, which provides unlimited two-day shipping for an annual fee of $79, would eat up profits.
In North America - the company's biggest market - revenue rose 21 per cent to $960 million. Media revenue shot up 17 per cent to $632 million while international sales grew 33 per cent to $793 million.
When adjusting for the $22 million impact of foreign currencies, international revenue was up 29 per cent.
The tax expense of $56 million related to the transfer of certain assets from the US to international locations, which Amazon expects to result in lower tax expenses over time.
Chief financial officer Tom Szkutak added that the last nine months represented the three fastest-growth quarters for Amazon in four years because of the discount shipping program. He said sales of electronics, tools, kitchen, health and personal care products were boosted by Amazon Prime.
Gross margin rose 110 basis points to 25.7 per cent during a quarter the company also boosted investment in technology as it seeks to hire computer sciences and software engineers throughout the year.
The company said its net shipping loss rose 31 per cent to $45 million due primarily to free shipping offers and Amazon Prime.
Shares rose $4.03, or 10.7 per cent, to $41.77 in after-hours trade on Inet. Amazon shares have climbed since hitting about a two-year low of $32.36 in late April and traded at a price to projected 2006 earnings per share of 95 cents.