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Friday, November 03, 2006

Amazon's 100th New Business (AMZN)

It is not enough for Amazon to sell books, CDs, movie downloads, consumer electronics, clothing, jewelry, food, beauty products, and Swiss Army knives.

Now, the internet shopping center is going to start selling services including data storage and web logistics for enterprises. Companies will be able to go to Amazon and rent computing and web services on demand.

Amazon believes that since it has spent 11 years building a huge web infrastructure for itself and its merchants, then it must know something about helping other companies by sharing this expertise.

Amazon's current support services business has grown 60% over last year and now has 200,000 customers building web services on the Amazon network.

The open question is how many businesses Amazon should be in. Its expansion beyond its original book business has help increase revenue, but at what cost?

For the September period, revenue rose from $1.858 billion last year to $2.307 billion. Gross profit rose from $463 million to $549 million. But, operating expenses were up in fulfillment and in technology & content, so income from operations only went from $408 million to $509 million.

The good news is that Amazon's domestic sales grew 21% in Q3 and international sales were up 29%. But, the company still loses money on its shipping activity. In Q3, shipping revenue was $118 million, and shipping costs were $182 million.

Amazon has stayed in business and has had fairly impressive revenue growth. How much of this can ultimately be ascribed to diversification is hard to tell.

At least selling computing services does not involve shipping costs.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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