>Sales, Led by Digital, Jump at Amazon But Earnings Fall


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Sales in Amazon’s North America media segment rose 18% in the first quarter, to $1.89 billion, while sales in the North America electronics and general merchandise group jumped 63%, to $3.3 billion. Overall, revenue rose 38%, to $9.86 billion, but net income fell 33%, to $201 million. The company invested $298 million in capital expenditures in the quarter in such areas as technology and infrastructure; the company has announced plans to open nine fulfillment centers this year and could open more. Shipping costs also rose as more customers used Amazon Prime.

Sales gains were driven by a 51% increase in unit sales in the quarter which the company said was led by an acceleration of growth in its digital businesses. Without divulging numbers, Amazon said Kindle owners buy more “a lot more” books than non-Kindle owners and that digital customers continue to buy physical products. “We are seeing customers who are digital customers still being very good, physical customers as well, so buying, doing a lot of cross shopping across our business,” said CFO Thomas Szkutak. “And so we’re very excited about our digital offerings and it’s certainly reflected in the unit growth….but also we’re seeing very good growth amongst many physical categories across all of our geographies as well.”
The media segment is home to Amazon’s print book sales while the faster-growing egm segment houses Kindle and e-book sales. Szuktak said Amazon will release the new $114 ad-supported Kinlde today, several days ahead of schedule. Amazon said it now has over 900,000 titles for sale in the Kindle store. On a worldwide basis, media segment sales increased 15%, to $3.96 billion, and egm segment sales rose 54%, to $5.59 billion. Media, which represented 48% of total revenue in the first quarter of 2010, accounted for 40% of sales in the most recent quarter.
Asked about the potential impact of being forced to collect sales tax, the company noted that it already collects sales and valued added tax in places that account for over half of its revenue. In its 10Q filing with the SEC, Amazon noted that the SEC had made an inquiry into the assertion by Texas that Amazon owes its $269 million in sales tax. Amazon said it is cooperating with the inquiry. 

For the second quarter, Amazon predicted that sales will increase between 35% to 47%, but expects operating income to fall between 9% to 65% as the company continues to invest in various aspects of its operations. 
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