Amazon dodges a slow economy

By Yi-Wyn Yen

A slowing economy hasn’t fazed Amazon.

The online retail giant beat the Street on Wednesday with sales that soared 37% to $4.13 billion for the first quarter. Amazon (AMZN) also reported profits of $143 million, or 34 cents per share from the same period a year ago, which came in ahead of analyst estimates of 32 cents a share on revenue of $4.08 billion.

Despite fears of an economic meltdown, Amazon raised its 2008 sales forecast slightly, to between $19.1 and $20 billion, which would be an increase of about 30% over 2007. Specifically, Amazon expects to see growth in sales from third-party retailers that sell on the site and make up about one third of its revenues, as well as from Amazon Prime, a $79 service that guarantees free two-day delivery on every purchase.

Still, analysts grilled Amazon CFO Tom Szkutak about how a consumer slowdown might affect the company. Szkutak said he didn’t have a “lot of data points on the economy,” but that Amazon was focused a simple strategy: offer customers good selections at low prices. “It’s hard to predict what will happen,” Szkutak said. “We think that in this type of environment, customers want great value for down times and up times.”

Though revenues continue to surprise investors, Amazon’s operating margins - long a concern for Wall Street - have remained flat at 4.8% as the company invests heavily to expand its technology and its businesses abroad.

“They’re driving hard for growth,” says Jeffrey Lindsay, an Internet analyst with Bernstein Research. “What keeps surprising us is better than expected growth versus lower than expected margins.”

Investors have punished Amazon before for its disappointing margins, and this latest report was no different. Shares fell 5% in after-hours trading Wednesday.