Good News Out of Amazon — Finally

Shares of Amazon.com surged more than 30 percent Monday after the e-retailing giant said its losses for the first quarter would be narrower than Wall Street's forecasts.

The disclosure of Amazon's preliminary first-quarter results is the first meaningful good news to come out of Seattle-based company in months and is certain to silence some of Amazon's most strident critics.

The results stand out at a time when Internet companies and offline retailers alike are being buffeted by a slowing economy. The announcement helped spark a rally among technology shares.

By 12:10 p.m. PDT, Amazon shares had risen $2.81, or nearly 34 percent, to $11.18 on volume of more than 20 million shares.

Still, the positive development was tempered by Amazon's dramatic downsizing of growth expectations at the end of last year. "They took their pain early," said Lauren Cooks Levitan, an analyst with Robertson Stephens.

The No. 1 Internet retailer said its revenues for the first quarter would jump 21 percent to more than $695 million, buoyed in part by strong growth in consumer electronics and international sales. Amazon said its pro-forma loss, which excludes many items, is expected to be about 22 cents a share. Wall Street analysts had expected to Amazon to report a loss of 30 cents.

"This is obviously a nice surprise," George Sutton, an analyst with Dain Rauscher Wessels, wrote in a note to investors. Sutton, who raised Amazon’s rating to a "buy," but qualified it as speculative, said he was impressed with the company's efficiency improvements.

Amazon appears to be doing a good job of working with its vendors directly to cut costs and improve profit margins, Levitan said. "But it is hard to get excited by a company whose core category isn’t growing."

Indeed, Amazon said its core books, music and video business — the company's largest and only profitable segment — would show "very slight sales growth." Analysts worry that newer categories, such as consumer electronics, which are expanding rapidly will eventually hit the same sluggish growth rate as Amazon’s core business.

Some analysts warned that Amazon’s preliminary results are thin on details. "The consumer electronics segment appears to have picked up the slack for the slow growth in [books, music and video]," wrote Mark Rowen, an analyst with Prudential Securities, in a note to investors. "We remain concerned that this is a negative contribution margin category, and therefore will lose more and more money as it grows." Rowen reiterated a rare "sell" rating he gave Amazon earlier this year.

Shares of Amazon are still trading at a premium compared to other growth retailers such as the Gap, Staples, Home Depot and others, Levitan cautioned.

Amazon said its gross profit is expected to top $175 million, up 35 percent from the year earlier, as its net loss narrows to less than $255 million, down from $308 million.

The company also said it would end the quarter with about $640 million in cash and marketable securities, and finish the year with about $900 million in cash and marketable securities. The announcement may quell mounting concerns, highlighted by former Lehman Brothers bond analyst Ravi Suria, that Amazon would run out of cash soon.

The company said its inventory turnover, an important measure of a retailer’s efficiency, increased to 12 this year from nine the previous year.