Amazon.com's Shares Fall After Soaring Tax Bill Hurts Profit
April 27 (Bloomberg) -- Amazon.com Inc., the Web retailer that didn't pay taxes while losing money for eight years, disclosed yesterday its tax bill will soar this year and contribute to a drop in 2005 profits.
Shares of the Seattle-based company fell 3.5 percent after it reported that $56 million in taxes led to the first decline in net income in seven quarters. Amazon.com said its tax rate will remain high through the remainder of this year, catching some analysts by surprise.
``This is the first quarter where there was what I consider a significant tax impact,'' said Tim Ghriskey, fund manager for Bedford Hills, New York-based Solaris Asset Management, which owns Amazon.com shares among its $650 million in assets. ``Some of the Street had taxes in their numbers and some of the Street didn't.''
The company's tax rate of 52 percent in the first quarter compares with 28 percent at No. 1 Web marketplace EBay Inc. and 19 percent for Google Inc., the most-used Internet search engine. Amazon.com's higher tax rate stems from the movement of certain assets to foreign locations, Chief Financial Officer Tom Szkutak said on a conference call, as the retailer expands overseas in Japan and Germany and gets a bigger percentage of its revenue from international operations.
Amazon.com yesterday said net income tumbled 30 percent to $78 million, or 18 cents a share, from $111 million, or 18 cents, a year earlier. Sales rose 24 percent to $1.9 billion.
The retailer reported spending more on marketing and technology as operating expenses rose 39 percent to $350 million. Amazon.com said it is hiring more engineers this year as well as investing in warehouses.
Sales
Amazon.com Chief Executive Jeff Bezos also debuted a new program where customers get unlimited two-day shipping on orders for a $79 annual fee. The program, along with Amazon.com's free shipping of certain orders costing at least $25, contributed to a $12 million increase in shipping loss to $55 million.
``The program is off to a very good start,'' Bezos, 41, said on a conference call.
Amazon.com forecast second-quarter revenue to rise as much as 32 percent to as much as $1.83 billion. That compares with the average estimate of 20 analysts surveyed by Thomson Financial of $1.71 billion. Amazon.com raised its annual revenue forecast to as much as $8.68 billion from $$8.65 billion earlier.
The company said operating profit as a percentage of sales fell to 5.7 percent from 7.2 percent a year earlier. It forecast operating income this quarter will drop to $50 million to $80 million from $86.3 million a year earlier.
Shares
The online retailer's shares fell to $31.57 at 6:30 p.m. New York time in extended trading after closing down 82 cents at $32.71 in Nasdaq Stock Market trading. Amazon.com shares have fallen 31 percent in the past year.
The first quarter was the first in which Amazon.com had not reported earnings on a so-called ``pro-forma'' basis, which exclude items such as stock-based pay costs and some other expenses.
``You essentially had a quarter where the company met or beat expectations but in effect guided down,'' said David Garrity, a Caris & Co. analyst who said the operating income forecast damped the stock price in after-hours trading.
Garrity, who has an ``above average'' forecast on the shares, didn't include a tax forecast in his estimate.
Taxes
``We knew there was a surprise coming, we didn't just know what the rate was going to be,'' said American Technology Research analyst Mark Mahaney, who rates Amazon.com shares ``hold'' and doesn't personally own the shares.
The $56 million in income taxes compared with a $2 million tax benefit a year earlier.
The company had previously said it expected net income to fall in 2005, partly because it had a $233 million tax benefit last year. Amazon.com had said it expect to have a cash outlay of $25 million for taxes in 2005 after use of benefits from its previous net operating losses, though hadn't given a tax rate.
Szkutak didn't provide specifics on how the move of assets to international locations resulted in a higher than expected tax rate. He said the move was part of overall global tax planning that should result in lower rates in the future.
