Investors Relieved by Amazon's Pledge to Cut Spending

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

Amazon to Curtail Its Spending [New York Times]

Summary: Online retailer Amazon.com, whose Q3 earnings fell by over one-third, has announced that it will begin to curtail spending on technology projects, expansion and new personnel. Relieved investors rewarded this news by bidding the stock up 14% in after-hours trading to close at $38.38. Amazon competes not only with sellers of physical merchandise but also with digital merchants like Apple's iTunes. Amazon has responded by investing heavily in new technology and services and bolstering its roster of software engineers. Amazon's investment in new technology over the quarter totaled $171 million, a 42% increase -- a commitment the company defended as being essential to achieve "power growth" in its competitive environment. Amazon also invested heavily in the toy business after the courts gave permission to Toys "R" Us to sell its merchandise on its own website. In addition to reassuring investors that the period of intense spending is over, Amazon has boosted its guidance for Q4, anticipating revenue of $3.63-$3.95 billion, an increase of 22-33% over the period last year and ahead of Wall Street’s forecast. Sales increased to $2.31 billion in Q3 versus $1.86 billion in the period last year, just edging the $2.25 billion expected by analysts. Profit in the quarter declined 37% to $19 million, or 5 cents a share, from $30 million, or 7 cents, a year earlier.
Related links: Amazon.com Q3 2006 Earnings Call Transcript • Amazon Trading Up Nearly 15% After Hours On Earnings Beat • Amazon Struggling Against Independent Toys "R" Us • Second Life for Amazon • After Years of Complaints, IBM Finally Sues Amazon For Patent Infringement • Internet Stocks: Amazon Overvalued, Shutterfly Won't Be Profitable • Amazon Focuses on Revenue [Washington Post]
Potentially impacted stocks and ETFs: Amazon (AMZN) • First Trust Dow Jones Internet Index Fund (FDN), Internet HOLDRs Trust (HHH)

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