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Amazon profits take a hit

Lawsuits and tax sap cash

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Online retailer Amazon saw profits take a hit in its third quarter, due mainly to a $40m legal settlement.

The company said on Tuesday that third-quarter net income declined to $30m, or $0.07 a share, from $54m, or $0.13 a share, a year earlier. The figures include a $21m income-tax expense as well as a $40m legal settlement related to a patent lawsuit.

Without the settlement payout, Amazon would have reported net income of $50m, or $0.12 a share. Analysts on Wall Street were expecting earnings of about $0.10 a share, according to a survey by Thomson First Call.

The company also said that revenue jumped 27 percent to $1.86bn from $1.46bn. Amazon topped expectations on the Street, where it was predicted that the firm would report revenues of $1.8bn.

Though Amazon's top-line figures were generally good, some analysts were disappointed with the results, which showed no significant improvements in the company's margins - with non-standard operating margins coming in at 6.5 per cent. Recent expansion in the company's selection of products, as well as real-world infrastructure investments, have pushed Amazon's operating costs up almost 50 per cent in the last year, but haven't significantly enhanced Amazon's bottom line.

In other parts of the results, Amazon said that North American sales, which represent the company's US and Canadian sites, grew 28 per cent to $1.04bn for the quarter. Meanwhile, international sales hit $817m, up 26 per cent.

Looking forward, the retailer said it expects fourth-quarter operating income of around USD135 million to USD210 million - a forecast that includes $30m for stock-based compensation and amortisation of intangible assets. For the full year, the company expects sales of $8.37bn to $8.67bn and operating income of $403m to $478m.

Earlier this year, Amazon announced that it would set up a European systems and network operations centre in Dublin. The IDA Ireland-supported operation is to provide infrastructure support for Amazon's systems and networks worldwide. The centre is to create a total of up to 25 new jobs within two years.

Copyright © 2005, ENN

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