Amazon.com Announces Third Quarter Sales up 28% to $5.45 Billion; Newest Kindle Now Shipping and Lowering Price to $259 from $279

Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its third quarter ended September 30, 2009.

Operating cash flow was $2.25 billion for the trailing twelve months, compared with $1.27 billion for the trailing twelve months ended September 30, 2008. Free cash flow increased 98% to $1.92 billion for the trailing twelve months, compared with $0.97 billion for the trailing twelve months ended September 30, 2008.

Common shares outstanding plus shares underlying stock-based awards outstanding totaled 451 million on September 30, 2009, compared with 448 million a year ago.

Net sales increased 28% to $5.45 billion in the third quarter, compared with $4.26 billion in third quarter 2008. Excluding the $41 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales would have grown 29% compared with third quarter 2008.

Operating income increased 62% to $251 million in the third quarter, compared with $154 million in third quarter 2008. Excluding the $10 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, operating income would have grown 69% compared with third quarter 2008.

Net income increased 68% to $199 million in the third quarter, or $0.45 per diluted share, compared with net income of $118 million, or $0.27 per diluted share, in third quarter 2008.

“Kindle has become the #1 bestselling item by both unit sales and dollars – not just in our electronics store but across all product categories on Amazon.com. It’s also the most wished for and the most gifted. We are grateful for and energized by this customer response,” said Jeff Bezos, founder and CEO of Amazon.com. “Earlier this week we began shipping the latest generation Kindle. Its 3G wireless works in the U.S. and 100 countries, and we’ve just lowered its price to $259.”

Highlights

• This week we started shipping Kindle with U.S. & International Wireless and lowered its price to $259 from $279. This newest Kindle is available to ship to customers living outside the U.S. Customers in more than 100 countries around the world, and U.S. customers traveling abroad, can take advantage of Kindle’s 3G wireless technology to download a title in 60 seconds or less.
• The U.S. Kindle Store now has more than 360,000 books, including 101 of 112 New York Times Bestsellers, more than 7,000 blogs, and more than 90 top U.S. and International newspapers and magazines, including: The New York Times, The Wall Street Journal, The Times (U.K.), Le Monde, The Economist, Newsweek, Time, and Fortune. Kindle owners can also select from over 60,000 audiobooks from Audible.com and listen to them directly on their Kindle.
• The Company announced “Kindle for PC,” the free application for reading Kindle books on the PC. Kindle for PC features Amazon’s Whispersync technology, which automatically saves and synchronizes customers’ bookmarks and last page read across devices, including the Kindle, Kindle DX, iPhone, iPod touch, and PC.
• North America segment sales, representing the Company’s U.S. and Canadian sites, were $2.84 billion, up 23% from third quarter 2008.
• International segment sales, representing the Company’s U.K., German, Japanese, French and Chinese sites, were $2.61 billion, up 33% from third quarter 2008. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, International sales grew 35%.
• Worldwide Media sales grew 17% to $2.93 billion. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter sales grew 18%.
• Worldwide Electronics & Other General Merchandise sales grew 44% to $2.36 billion. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter sales grew 45%.
• Amazon.com launched “Local Express Delivery,” a new shipping option giving customers same-day delivery on thousands of items in seven major cities: New York, Philadelphia, Boston, Baltimore, Las Vegas, Seattle and Washington D.C. Amazon Prime members pay just $5.99 per item for the service.
• The Company continues to expand and enhance free shipping offers across the world. Amazon.co.uk began offering free shipping on all products in the U.K., eliminating the prior threshold of £5; while Amazon.co.jp now offers free same-day delivery service to Amazon Prime customers in the Kanto and Kansai regions of Japan.
• Items shipped on behalf of sellers who utilized Fulfillment by Amazon (FBA) more than tripled from the prior year. Sellers can still join FBA and take advantage of Amazon’s extended delivery promise for the holidays − customers can order items as late as December 23rd and still get them in time for the holidays.
• Amazon.com expanded its Frustration-Free Packaging program, offering additional items from Fisher-Price, Mattel, Kingston and other leading toy and electronics manufacturers in easy-to-open, environmentally friendly packaging.
• Amazon Web Services (AWS) launched Amazon Virtual Private Cloud (Amazon VPC), a secure and seamless bridge between a company’s existing IT infrastructure and the AWS cloud, enabling enterprises to connect their existing infrastructure to AWS compute resources.

Financial Guidance

The following forward-looking statements reflect Amazon.com’s expectations as of October 22, 2009. This guidance excludes the impact of Zappos.com, Inc., including approximately $35 million of expenses primarily related to employee compensation costs, amortization of intangibles and merger-related expenses that would be recognized in the fourth quarter 2009 if the transaction closes as planned. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce and the various factors detailed below.

Fourth Quarter 2009 Guidance

• Net sales are expected to be between $8.125 billion and $9.125 billion, or to grow between 21% and 36% compared with fourth quarter 2008.
• Operating income is expected to be between $300 million and $425 million, or to grow between 10% and 56% compared with fourth quarter 2008. This guidance includes approximately $100 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions or investments are concluded and that there are no further revisions to stock-based compensation estimates.

A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results.

These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services and technologies, system interruptions, government regulation and taxation, payments and fraud. In addition, the current global economic climate amplifies many of these risks. More information about factors that potentially could affect Amazon.com’s financial results is included in Amazon.com’s filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and subsequent filings.

About Amazon.com

Amazon.com, Inc. (NASDAQ: AMZN - News), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth’s Biggest Selection. Amazon.com, Inc. seeks to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as Books; Movies, Music & Games; Digital Downloads; Computers & Office; Electronics; Home & Garden; Grocery, Health & Beauty; Toys, Kids & Baby; Apparel, Shoes & Jewelry; Sports & Outdoors; and Tools, Auto & Industrial.

Amazon Web Services provides Amazon’s developer customers with access to in-the-cloud infrastructure services based on Amazon’s own back-end technology platform, which developers can use to enable virtually any type of business. Examples of the services offered by Amazon Web Services are Amazon Elastic Compute Cloud (Amazon EC2), Amazon Simple Storage Service (Amazon S3), Amazon Elastic Block Store, Amazon SimpleDB, Amazon Simple Queue Service (Amazon SQS), Amazon Flexible Payments Service (Amazon FPS), Amazon Mechanical Turk and Amazon CloudFront.

Amazon and its affiliates operate websites, including www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.amazon.cn.

As used herein, “Amazon.com,” “we,” “our” and similar terms include Amazon.com, Inc., and its subsidiaries, unless the context indicates otherwise.

Amazon.com, Inc.

Certain Definitions and Other

Segment Reporting

• We present segment information for North America and International. We measure operating results of our segments using an internal performance measure of direct segment operating expenses that excludes stock-based compensation and other operating expense, each of which is not allocated to segment results. Other centrally incurred operating costs are fully allocated to segment results. Our operating results, particularly for the International segment, are affected by movements in foreign exchange rates.
• The North America segment consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused websites such as www.amazon.com and www.amazon.ca. This segment includes export sales from www.amazon.com and www.amazon.ca.
• The International segment consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally focused websites such as www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, and www.amazon.cn. This segment includes export sales from these internationally based sites (including export sales from these sites to customers in the U.S. and Canada), but excludes export sales from www.amazon.com and www.amazon.ca.
• We provide supplemental sales information within each segment for three categories: Media, Electronics and Other General Merchandise, and Other. Media consists of amounts earned from retail sales from all sellers in categories such as books, movies, music, digital downloads, software and video games (including game consoles). Electronics and Other General Merchandise consists of amounts earned from retail sales from all sellers of items in categories not included in Media, such as electronics and computers, devices, home and garden, toys, kids and baby, grocery, apparel, shoes and jewelry, health and beauty, sports and outdoors, tools, and auto and industrial. Other consists of non-retail activities, such as the Amazon Enterprise Solutions program, Amazon Web Services, and miscellaneous marketing and promotional activities, such as our co-branded credit card programs.

Customer Accounts

• References to customers mean customer accounts, which are unique e-mail addresses, established either when a customer’s initial order is shipped or when a customer orders from other sellers on our websites. Customer accounts exclude certain customers, including customers associated with certain of our acquisitions (including www.amazon.cn customers), Amazon Enterprise Solutions program customers, Amazon.com Payments customers, Amazon Web Services customers, and the customers of select companies with whom we have a technology alliance or marketing and promotional relationship. Customers are considered active when they have placed an order during the preceding twelve-month period.

Seller Accounts

• References to sellers means seller accounts, which are established when a seller receives an order from a customer account. Seller accounts exclude Amazon Enterprise Solutions sellers. Sellers are considered active when they have received an order from a customer during the preceding twelve-month period.

Registered Developers

• References to registered developers mean cumulative registered developer accounts, which are established when potential developers enroll with Amazon Web Services and receive a developer access key.

Units

• References to units mean physical and digital units sold (net of returns and cancellations) by us and sellers at Amazon.com domains worldwide – such as www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca and www.amazon.cn, as well as Amazon.com-owned items sold through non-Amazon.com domains, such as books, music and movie items ordered from Amazon.com’s store at www.target.com. Units sold do not include units associated with certain of our acquisitions or Amazon.com gift certificates.

Cash Flows and Return on Invested Capital

• Free cash flow is cash flow from operations reduced by purchases of fixed assets, including internal-use software and website development.
• Tax benefits relating to excess stock-based compensation deductions are reported as financing cash flows.
• Return on invested capital is trailing-twelve-month free cash flow divided by average total assets less current liabilities (excluding current portion of our long-term debt) over five quarter ends.

Net Sales

• Revenue is generally recorded gross for sales of our own inventory and net for sales by other sellers. Amounts paid in advance for subscription services, including amounts received for Amazon Prime and other membership programs, are deferred and recognized as revenue over the subscription term. For our products with multiple elements, where a standalone value for each element cannot be established, we recognize the revenue and related cost over the estimated economic life of the product.

Cost of Sales

• Cost of sales consists of the purchase price of consumer products and content sold by us, inbound and outbound shipping charges, packaging supplies, and costs incurred in operating and staffing our fulfillment and customer service centers on behalf of other businesses.

Fulfillment

• Fulfillment costs relate to variable costs corresponding with sales volume and inventory levels; our mix of product sales; payment processing and related transaction costs, including mix of payment methods and costs from our guarantee for certain seller transactions; and costs from expanding fulfillment capacity.

Marketing

• Marketing consists primarily of online advertising, including through our Associates program, sponsored search, portal advertising, e-mail campaigns, and other initiatives.

Technology and Content

• Technology and content expenses consist principally of payroll and related expenses for employees involved in application development, category expansion, editorial content, buying, merchandising selection, and systems support, as well as costs associated with the compute, storage and telecommunications infrastructure.
• A significant majority of our costs for “Technology and content” are incurred in the United States and most of these costs are allocated to our North America segment.

Contact:

Amazon.com Investor Relations
Rob Eldridge, 206-266-2171
www.amazon.com/ir
or
Amazon.com Public Relations
Craig Berman, 206-266-7180