The online retailer Amazon believes sales will shoot to more than $13bn (£6.6bn) this year from $10.7bn last year, after the company reported a 34% rise in the run-up to Christmas. But analysts are divided over whether the company can make serious returns as it battles to keep prices low.
Profits halved for the Seattle-based retailer in the fourth quarter of last year despite sales of just under $4bn as Amazon invested heavily in its business, sold more lower-margin goods and paid more tax. Amazon's fourth-quarter profit was $98m, down from $199m a year earlier. Sales were boosted by a 55% rise in sales of electronic items but these carry a lower profit margin than other goods.
Some on Wall Street remain concerned that the company is spending heavily but returns continue to reduce. Jeetil Patel at Deutsche Bank said sales of big ticket consumer electronics such as Nintendo's Wii console helped sales increase but at the expense of margins. He expects investment to slow as Amazon now has the infrastructure to drive more business.
But Robert Peck, a Bear Stearns analyst, trimmed his stance to underperform from outperform. He said: "As we watch gross margins decline for the fourth consecutive quarter year-over-year and 2007 operating margin guidance lower than 2006, we think the near-term performance of the stock will be challenging."
Amazon expects sales this year to jump by about a quarter to $13bn-$13.7bn - considerably higher than Wall Street expected. Highlighting the volatility of Amazon's margins, however, operating income could be as much as 9% lower than last year or up 30% at $355m to $505m.
It also emerged yesterday that the final instalment of Harry Potter looks set to become one of the most pre-ordered books in history. Although the book is not out until July, Amazon said Harry Potter and the Deathly Hallows was already top of its bestseller lists. Pre-orders for the seventh Harry Potter book in the two weeks following the start of pre-ordering on December 22 were up 547% compared with orders for The Half-Blood Prince. More than 1.5 million people worldwide ordered a copy of the previous Potter novel from Amazon - 400,000 in Britain - before it was published. The Deathly Hallows looks set to smash through that target.
As for items that customers could buy, Amazon said UK sales were dominated by Pirates of the Caribbean: Dead Man's Chest, which is the fastest-selling DVD in history. The bestselling book in the last quarter of 2006 was QI: The Book of General Ignorance, a TV panel game tie-in.
Take That's Beautiful World was the bestselling album, while in the homes and gardens category, Jamie Oliver's Flavour Shaker grabbed the top spot. Apple's top-of-the-range 30GB video-enabled iPod came in third in consumer electronics, beaten by two USB storage devices.
