You wouldn't know there's been a slowdown in consumer spending by looking at Amazon.com and Netflix.
Both companies have continued to grab customers at a record pace, leading to higher earnings and sales for their third quarters.
Net income for Amazon jumped 68 percent to $199 million, or 45 cents a share, in the quarter that ended September 30, compared with $118 million, or 27 cents a share, in the prior year's quarter.
Sales rose 28 percent to $5.45 billion versus $4.26 billion in 2008's third quarter, the company said Thursday.
Amazon's stock shot up $23.75, or 25 percent, to $117.29 in Friday trading.
Amazon's two-year stock chart.
(Credit: Yahoo Finance)Amazon attributed its earnings to several key factors.
Chief Financial Officer Tom Szkutak said Thursday in a conference call with reporters that consumers continue to spend at Amazon because of its low prices and large selection. The company noted that it had 98 million customer accounts by the end of the third quarter, 17 percent higher than a year ago.
Worldwide sales from books, CDs, DVDs, and other media grew 17 percent to $2.93 billion, while revenue for electronics and other general merchandise soared 44 percent to $2.36 billion.
Another solid driver for growth was the Amazon e-book reader, Kindle.
"Kindle has become the No. 1 bestselling item by both unit sales and dollars--not just in our electronics store but across all product categories on Amazon.com," Amazon CEO Jeff Bezos said in a statement. The company did not release specific sales figures for the Kindle.
Amazon managed to clobber analysts' expectations. J.P. Morgan had forecast earnings per share of 31 cents on sales of $5 billion. Broadpoint.Gleacher analyst Ben Schachter had been eyeing earnings per share of 33 cents and said that sales were 7 percent higher than he expected.
In a report, J.P. Morgan said Amazon's strong sales growth shows that the company is grabbing significant market share from other e-commerce players, such as eBay.
In his report, Schachter called the results "phenomenal." He noted that Amazon was able to keep its costs in check while gaining market share in virtually every product category. The analyst also said he was "shocked" to hear Bezos' statement that the Kindle has become the company's top-selling item.
For the current quarter, Amazon is looking for sales of $8.13 billion to $9.13 billion, 21 to 36 percent higher than last year's fourth quarter, and racing past analysts' estimates of $8.11 billion.
Collins Stewart analyst Sandeep Aggarwal said in a report that improving e-commerce trends and continued growth for the Kindle, among other factors, could make Amazon the fastest growing large-cap Internet stock.
Another beneficiary of solid customer growth, Netflix also surpassed analysts' expectations for the third quarter.
The company's earnings jumped 48 percent to $30.1 million, or 52 cents a share, versus $20.4 million, or 33 cents a share in the prior year's quarter. Sales grew 24 percent to $423.1 million, compared with $341.3 million in 2008's third quarter.
Overall, analysts had been expecting earnings of 46 cents per share on sales of $420 million.
Growth in subscribers was the key driver for Netflix in the third quarter. The company ended the quarter with around 11.11 million subscribers, a 28 percent jump from the 8.67 million subscribers at the end of 2008's third quarter. Of the current total, 98 percent, or 10.84 million, were paid subscribers, while the remaining 2 percent were free subscribers.
"Our business momentum is strong and our third quarter performance keeps us solidly on course for a record 2009," Netflix co-founder and Chief Executive Officer Reed Hastings, said in a statement.
Though most Netflix customers still prefer to get their movies by conventional mail, Internet streaming has gradually taken off. In the third quarter, 42 percent of Netflix subscribers streamed at least 15 minutes of video, compared with only 22 percent in the prior year's quarter.
Customers can stream their Netflix picks not just through the PC but via gadgets like Microsoft's Xbox 360, which has helped attract new customers.
Now Netflix has reportedly struck a deal to add streaming to another device, which Hastings said is already in people's homes. Though the company has been mum about details, analysts believe it may be a video game console made by either Sony or Nintendo.
Netflix shares were up $4.58, or 9 percent, to $54.22 on Friday.
For the fourth quarter, the company believes customer growth and sales will be higher than anticipated three months ago. Netflix now expects to end the current quarter with 12 million to 12.3 million subscribers, up from the prior estimate of 11.6 million to 12 million. That would represent an additional 900,000 to 1.2 million customers.
Fourth-quarter sales are likely to reach $440 million to $446 million, up from the previous estimate of $431 million to $445 million.
However, the company forecasts a downturn in earnings from the third quarter, eyeing fourth-quarter net income of $21 million to $26 million, or 38 cents to 47 cents a share.
Expenses may be one factor affecting current earnings. Hastings said the company expects to spend more on marketing and licensing fees for Internet streaming. Netflix also believes its postal costs will continue to grow, surpassing $600 million next year and $700 million in 2011.
PS3 sales are slumping, but not as bad as the Wii's sales, which have been cut in half.
(Credit: Sony)Sony latest earnings show that it continues to be hammered by the worldwide recession and strong yen, suffering a net loss of $390.5 million in the quarter that ended June 30.
The bright spot was Sony's motion picture division, which saw a 6.5 percent boost that was largely attributable to the relatively strong showing of "Angels & Demons" at the box office. But almost everything else, including TV, video game, and computer sales, was down in a big way.
In an article, The New York Times highlighted the 37.4 percent year-over-year slump in gaming and computer sales (Vaio PC). The article noted that PlayStation 3 game consoles were "particularly sluggish" and that software sales had dropped.
According to the report, Sony said it sold about 1.1 million PlayStation 3s and 1.3 million PlayStation Portables in the latest quarter, compared with 1.6 million PS3s and 3.7 million PSPs in the same period a year ago.
The wane in PSP sales is particularly brutal, although part of that slowdown may have been due to rumors earlier in the quarter that Sony would release a new PSP later in the year. (And sure, enough, the PSP Go was unveiled in June at E3.) Also, the constant spate of rumors involving the potential arrival of a new PS3 Slim certainly hasn't helped sales of the current game console.
On a more positive note, we recently attended a PlayStation preview in New York that highlighted the PSP Go and the exclusive titles available for both the PSP and PS3 platforms during the upcoming holiday-shopping season. Overall, it looked pretty good.
Sony can also be consoled by the fact that sales are also way down for the Wii, as Nintendo reported a 66 percent fall in quarterly operating profit on "slowing demand for its Wii console and a stronger yen."
Nintendo sold 2.23 million Wii consoles in the quarter, compared with 5.17 million the same quarter a year earlier.
However, Nintendo still posted a profit of $445 million and is forecasting that it will sell 26 million Wii consoles before year's end--along with 30 million DS handheld game players, which, by the way, is seeing increased competition from another handheld device. Nintendo didn't mention the PSP as the rival in its earning call, but rather Apple's iPhone.
Comments? Is the PlayStation franchise in serious trouble or will it pull out of its funk this holiday season? Does Nintendo need to cut the price of Wii?
Video game publisher Take-Two Interactive Software posted a wider quarterly loss on Wednesday and forecast a sharp drop in sales revenue for the current quarter.
For the quarter that ended October 31, the company best known for its Grand Theft Auto franchise reported a net loss of $15 million, or 20 cents a share, compared with a net loss of $7.1 million, or 10 cents a share, a year ago. Revenue increased 11 percent to $323.4 million on the sales strength of its Midnight Club: Los Angeles, NBA 2K9, and Grand Theft Auto IV titles.
The company predicted a fiscal first-quarter loss of 70 cents to 85 cents a share on revenue of $175 million to $225 million, falling short of Wall Street estimates of $310.75 million.
Executives blamed weak consumer spending amid a global economic downturn. Take-Two Chairman Strauss Zelnick said the company had "witnessed significant softness" in retail sales and noted the 2009 forecast factors in the recent bankruptcy of electronics retailer Circuit City.
Take-Two fended off a $2 billion hostile acquisition bid earlier this year by rival game publisher Electronic Arts.
Shares of Take-Two fell to $9.56 in after-hours trading.
Video game publisher Electronic Arts on Thursday cut its forecast for the fiscal year and said it will slash its workforce 6 percent, or about 580 jobs, to reduce costs.
The Redwood City, Calif.-based company posted a net second-quarter loss of $310 million, or 97 cents, compared with a loss of $195 million, or 62 cents per share, for the year-ago period. Sales were up 40 percent year-over-year to $894 million on strength of the company's Rock Band, Spore, and Madden game titles.
However, EA cut its forecast for fiscal 2009 earnings per share excluding special items to a range of $1 to $1.40, from a previous range of $1.30 to $1.70. The company attributed the reduction to the delay of its Harry Potter game and the rising value of the dollar cutting into overseas sales values.
"Considering the slow down at retail we've seen in October, we are cautious in the short term," CEO John Riccitiello said in a statement. "Longer term, we are very bullish on the game sector overall and on EA in particular. The industry is growing double-digits on the strength of three new game consoles and increases in the number of homes with broadband internet connections.'
EA shares fell $3.95, or 14 percent, to $23.78 in after-hours trading.
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