Amazon.com battles its way to profits at long last

WEBSITES: The inventor of the "get big fast" model of internet business growth proved this week that maybe it was right after all.

Amazon.com, the seller of books and everything else - and easily the most recognisable name in the online consumer retail business - stunned many analysts by not only posting its first profit but one demonstrating it perhaps had broader stability and greater momentum towards future profit-growing than analysts had expected.

Shares jumped 25 per cent up to $12.50 on the news. But you have to remember that Amazon once reigned over the world of dot-hype share-bloat, with its stock at one point reaching an all time high of $400 per share.

And keep in mind that this profit, of $5 million (€5.6 million), should be set against losses of a staggering $2.8 billion since the Seattle company set up its online shop in 1995.

Boisterous Amazon.com chief executive Mr Jeff Bezos had boasted that the company would hit profitability this quarter but many eyed that claim with a rather wary (and weary) eye, expecting smoke and mirrors. Amazon has regularly used non-standard "pro forma" accounting practices much beloved of internet companies when reporting results.

Pro forma accounting allows figures to be shuffled around and a variety of costs to be excluded from the bottom line. Critics say this gives a distorted, overly positive view of a company's performance. Net companies say it more accurately reflects their unique operating environment.

But Amazon's tidy little profit was tabulated using standard accounting procedures. Critics still sniffed that Amazon was partially pushed into the black because some of its debt will cost less due to the decline in the dollar cost of debt held in euro. But most accepted that Amazon significantly cut its operating costs while increasing sales, especially in Europe.

Apparently we embraced online book buying with a passion through the holiday season, with international sales up 81 per cent on last year to $262.4 million, while Amazon's German and British operations broke even on cash flow. Amazon also managed to vastly improve the efficiency with which it prepares and despatches orders, enabling it to close two warehouses and hire 2,000 fewer temporary workers during the holiday period compared to last year - even as its sales and shipments increased to $3.1 billion for 2001.

Mr Bezos says the results set the stage for a further climb to profitability while enabling Amazon to pass on some savings to consumers.

The company already heavily discounts books costing more than $20, and plans to offer free shipping in the US on orders of more than $99, which has been a holiday-only practice for the retailer.

Those intentions suggest that the one-time online mantra of "get big at almost any cost" might actually pay off. Amazon, one of the earliest online retailers, served as a role model in this strategy for thousands of internet companies.

Many, if not most of those - at least in the consumer corner - died a short but dramatic death in the past year or so.

The one-time excessiveness and hubris of dotcom firms meant few mourned these deaths. Amazon, the biggest of them all and also one of the most aggressive, had simply been viewed as yet another gasping if tenacious patient moving ever closer to dotcom death.

In addition, certain high-profile lawsuits filed over what some viewed as spurious grounds - as the courts did eventually - did not enamour the company to some in the technology industry. Nonetheless, the charismatic and generally media-friendly Mr Bezos has retained a high and generally positive public profile, while consumers clearly liked clicking their way to their bedtime book.

The results this week will give Amazon a real boost, as consumers feel ever more confident about buying online from a company they now know isn't about to shut down anytime soon. And overall, the company will also give the internet industry a badly needed shot of confidence.

If Amazon could reach profitability in this of all quarters, one which has witnessed the official acknowledgement of global recession and the September 11th air strikes, then the internet industry may at last be finding its feet. In that case, many will hope internet business can now in fact begin to get big fast.