10-QPeriod: Q2 FY2005

AMAZON COM INC Quarterly Report for Q2 Ended Jun 30, 2005

Filed July 28, 2005For Securities:AMZN

Summary

Amazon.com, Inc. reported its financial results for the quarter ended June 30, 2005, showing continued revenue growth. Net sales increased by 26% year-over-year to $1.75 billion. While net income decreased from $76 million in the prior year to $52 million in the current quarter, this was largely driven by a significant increase in the provision for income taxes. The company continues to invest in technology and content, and operational expenses, particularly fulfillment and technology, saw increases to support growth and enhance customer experience. Despite a decrease in cash and cash equivalents due to strategic debt repayment and investments, Amazon maintained a strong liquidity position with substantial cash and marketable securities. The company also highlighted its ongoing efforts to manage costs and improve efficiency, particularly through its third-party seller services and focus on gross profit dollars.

Key Highlights

  • 1Net sales grew 26.3% year-over-year to $1.75 billion for the second quarter of 2005.
  • 2Gross profit increased 32.0% to $450 million, with consolidated gross margin improving to 25.7% from 24.6% in the prior year.
  • 3Net income for the quarter was $52 million ($0.12 per diluted share), a decrease from $76 million ($0.18 per diluted share) in the second quarter of 2004, primarily due to higher income tax provision.
  • 4The company's international segment continues to grow, representing 45.2% of consolidated net sales, with a strong year-over-year growth rate of 33.2%.
  • 5Operating expenses increased, with Fulfillment up 25% and Technology & Content up 48.7%, reflecting investments in growth and infrastructure.
  • 6Free cash flow for the trailing twelve months ended June 30, 2005, increased to $486 million, up 37% from $354 million in the prior year.
  • 7Amazon adopted SFAS 123(R) on January 1, 2005, leading to a cumulative benefit from accounting change and a reclassification of stock-based compensation expense.

Frequently Asked Questions

The primary reason for the decrease in net income from $76 million in Q2 2004 to $52 million in Q2 2005 was a significant increase in the provision for income taxes. Income before income taxes actually increased, but the higher tax provision offset this gain.

Amazon's international segment continues to be a strong growth driver, with net sales increasing by 33.2% year-over-year to $793 million in the second quarter of 2005. This segment now represents 45.2% of consolidated net sales, and the company expects it to eventually represent 50% or more of total sales.

Amazon views free shipping offers as a key marketing tool and intends to continue offering them indefinitely. While these offers reduce shipping revenue and can lower gross margins on retail sales, the company aims to offset these costs through increased sales volume, better supplier terms, operational efficiencies, and growth in higher-margin third-party sales.

Amazon maintains a strong liquidity position. At June 30, 2005, the company had $1.3 billion in cash, cash equivalents, and marketable securities. While this is a decrease from December 31, 2004, it reflects strategic debt repayments and investments. The company expects its current liquidity to be sufficient for at least the next 12 months.