Amazon's profit hits an "amazing" triple

Amazon.com's second-quarter profit more than tripled after the Web retailer reduced technology spending and boosted sales.

The better-than-expected results and an increase in the company's annual sales forecast catapulted Amazon's stock 21.4 percent in after-hours trading.

"It's an amazing performance," said Bernstein Research analyst Jeffrey Lindsay. "A lot of it [growth] seems to have come in the United States, which is particularly surprising since that's considered Amazon's most mature market."

Profit margins widened in a good sign for investors concerned the Seattle company in recent years has focused on sales growth at the expense of earnings.

Amazon on Tuesday reported a second-quarter profit of $78 million, or 19 cents a share, up from $22 million, or 5 cents, a year earlier.

The results beat analysts' per-share estimates by 3 cents.

Revenue rose nearly 35 percent to $2.89 billion on increased sales of electronics, jewelry and other merchandise. That was higher than analysts' expectations of $2.81 billion.

Sales in North America surged 38 percent, the highest growth there in six years.

Revenue from the company's U.K., German, Japanese, French and Chinese sites increased 31 percent to $1.28 billion. Amazon said a weaker dollar helped improve sales slightly.

"Our strong revenue growth this quarter was fueled by low prices and the added convenience of Amazon Prime," the company's discount-shipping membership program, Chief Executive Jeff Bezos said in a statement.

The retailer cut back on the rate of spending for its Web sites and on newer products such as the Unbox video-download service.

"Electronics and general merchandise are becoming a larger part of the business," said Colin Sebastian, a San Francisco analyst with Lazard Capital Markets. "On the investment side, they've moderated the increases," he said.

Amazon said sales for 2007 could hit $14.3 billion, higher than its April upper-limit forecast of $14 billion.

Analysts surveyed by Bloomberg News had estimated $13.8 billion on average.

Shares of Amazon jumped $14.80 to $84.05 in after-hours trading Tuesday. They had closed the regular session, before the results were announced, at $69.25, down $2.49.

Amazon shares already had surged 55 percent since first-quarter earnings in April showed improved profit margins and pared-back spending. The stock has more than doubled in the last year.

Technology and content spending slowed to 7 percent from 7.8 percent of sales, less than the 7.8 percent ratio estimated by Jeffrey Lindsay, a New York-based analyst with Sanford C. Bernstein.

That helped the company's operating margin — a source of much worry on Wall Street in recent years — climb to 4 percent of sales from 2.2 percent, Chief Financial Officer Thomas Szkutak said.

In March, Szkutak had said the company would curb technology spending this year, after its profit margin in 2006 fell to the lowest level since 1999.

Amazon, which doesn't give results on specific categories, said sales of electronics, jewelry and general merchandise climbed 55 percent to $970 million.

Books, DVDs and other media sales increased 27 percent.

Amazon has sought to diversify its offerings as Barnes & Noble and other bookstores have cut prices and promoted customer-loyalty programs.

Sales of books, DVDs and other media made up 64 percent of the company total, down from 68 percent a year earlier.

"Clearly, with the digitization of media, it's been a wise move to move to other areas," said Scott Tilghman, a New York-based analyst with Soleil Securities.

Third-party business represented 30 percent of worldwide sales in the quarter, Amazon said.

With these sales, Amazon takes a transaction commission but avoids inventory and fulfillment issues, thereby increasing profit margins.

"We think this model of having us as a seller as well as third party is very important for customers and also works for us financially as well," said Szkutak. "It should be a meaningful part of our business moving forward."

More than 49 million people visited Amazon Web sites in June, marking a 8.2 percent increase from a year earlier and making it the eighth most popular site in the U.S., according to Nielsen/NetRatings.

Information from Bloomberg News, Reuters and The Associated Press is included in this report.