By JESSICA MINTZ, AP Technology Writer
SEATTLE - Eagle-eyed investors are looking past Amazon Inc.'s double-digit growth in first-quarter earnings to spot signs that the Web retailer is not immune from broader economic uncertainty.
Even as Amazon's chief financial officer repeatedly said he didn't see evidence of U.S. shoppers changing habits ahead of a possible recession, analysts Wednesday were crunching numbers to find that the retailer had effectively lowered its sales expectations for the year.
Shares fell 4 percent, or $3.25, to $77.75 at the open of trade Thursday.
"Across the board, I wouldn't say there are any major red flags, but there are enough yellow flags here," said Tim Boyd, an analyst for American Technology Research. He pointed to slower sales growth in both major U.S. product categories — books, CDs and other "media" items, and electronics and general merchandise.
Adjusted for the effects of a weak U.S. dollar, growth in international sales slowed down, too.
And while U.S. margins improved, international margins worsened. Amazon said that's the expected result of offering items in new categories at aggressively low prices from the start.
Far from surprising, Boyd said Amazon's sales seemed to be "returning to more normal growth" after a stronger-than-usual year in 2007.
Earnings in the January-March quarter climbed 29 percent to $143 million, or 34 cents per share, from $111 million, or 26 cents per share, in the same period last year. Revenue rose 37 percent to $4.14 billion from $3.02 billion in the year-ago quarter.
Both measures beat Wall Street's expectations. Analysts surveyed by Thomson Financial had forecast, on average, a profit of 32 cents per share on $4.08 billion in sales.
"It is extremely impressive that they were able to grow like this in a difficult economic environment," Boyd said. "People's expectations have gotten ahead of what they (Amazon) can actually deliver."
In a conference call Wednesday, CFO Tom Szkutak downplayed the potential for U.S. economic troubles to hurt the business, despite the fact that 51 percent of revenue came from North America in the quarter.
"We don't have a lot of data points about the economy specifically, but what we're seeing in our business is, it's very solid," he said. Szkutak declined to answer questions about changes in what people were buying — more staples and fewer extras, perhaps? — or how much they were spending on each transaction.
Looking ahead to the rest of the year, Amazon forecast sales of $19.1 billion to $20.0 billion in revenue, more than the retailer had predicted three months ago. But Boyd and other analysts noted that the new guidance included millions of dollars in sales expected from Audible, an audio book company Amazon recently acquired, plus a bigger-than-expected boost thanks to a weaker U.S. dollar.
Factoring in those elements, analysts said Amazon was actually cutting its 2008 sales guidance, not raising it.
Amazon's operating income guidance for the year — $740 million to $940 million — also came in lower on both ends than the company's forecast three months ago, by about $45 million.
Szkutak explained that the operating income guidance was depressed by stock option expenses and costs associated with the acquisition of Audible.
As for the revenue guidance, "I wouldn't read too much into it," he said.
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