D-Day for Amazon

Tomorrow is D-day for Amazon as the book seller reaches its much publicised profitability deadline.

Although Amazon has remained tight-lipped on how near - or far - it is from profit, robust Christmas sales and analyst forecasts indicate the bookseller might not be all that far from its target.

In October Amazon reduced its Q4 revenue growth forecast from 10 to 20 per cent to 0 to 10 per cent, following mediocre results in Q3.

But post-Christmas figures released by Amazon suggest Q4 might have gone better than expected, with 37.9 million items sold in the eight weeks before Christmas - a satisfying 40 per cent increase on last year.

Despite the optimism, Wall Street tracking firm Thomson Financial/First Call has predicted the company will be weighed down by the $130m annual interest payment it currently forks out on its $2bn debt.

First Call has predicted a pro forma net loss of four to eight cents per share tomorrow, down from a loss of 25 cents a share last year

Revenue is expected to grow four per cent to $1.01bn, with a top estimate of $1.08bn.

Analyst house Lehman Brothers expects revenue growth to bypass Amazon's own ten per cent forecast and hit 12 per cent.

Original revenue predictions from the analyst house were in the region of $1.021bn - a five per cent increase on 2000 - but it concedes that revenue might actually come in about $1.091bn.

Operating profit is expected to be $4.4m or seven cents per share, although in her research note, Lehman analyst Holly Becker suggests the company could beat that forecast by $1m to £3m.

Analyst house ABN Amro was a little more cautious. Citing a difficult third quarter, it predicted Amazon would break even this quarter but could miss its pro forma profit target.

ABN Amro has forecast revenue of $1.0bn, after reducing its earlier forecast of $1.1bn.

However, analyst Arthur Newman believes the company will not see positive cash earnings per share until 2003, because of the massive interest payment it is making on its debt.

The analysts agree that a positive outcome tomorrow - and in the long term - will depend on increased sales in the BMV (book video music) rather than electronics and other goods.

BMV revenue is expected to be $440m, an eight per cent decrease on last year, according to Lehman's Becker.

If BMV revenue does not increase - and it may not due to Amazon's discounted prices this year - and a large amount of BMV items are sold at reduced prices on Amazon's used items store - the short-fall needs to be picked up by increased sales in the electronics, kitchen and tools division.

While this was Amazon's fastest growing division over the past year, revenue is expected to be just $204.2m.

And while stock is currently trading at just under $10, its long-term stability could be hit if BMV sales continue to underperform, with Lehman Brothers predicting a fall to under $5.