This is a summary of the third quarter fiscal 2007 earnings call conducted by Amazon.com, Inc. (AMZN: chart) on October 23, 2007.

Management:
Chairman of the Board, President, CEO - Jeff Bezos
Chief Financial Officer - Tom Szkutak
Investor Relations - Kim Nelson

Key Investor Issues:

- Earnings jumped to $80 million, or 19 cents per share, from $19 million, or 5 cents per share, during the same period a year ago.
- Revenue climbed 41% to $3.26 billion from $2.31 billion in the year-ago quarter.
- Gross margin dropped from 24.3% in the previous quarter to 23.4% in the third quarter.
- The company boosted its revenue forecast for the fiscal year between $14.26 billion and $14.61 billion, from earlier outlook of $13.80 billion to $14.30 billion.

Third Quarter Highlights

Trailing 12-month free cash flow increased 118% to $800 million, while the combination of common stock and stock-based awards outstanding was unchanged from a year ago at $435 million.

Worldwide revenue grew 41% to $3.26 billion, or 38% excluding the $75 million favorable impact from foreign exchange.

- Third quarter 2007 revenue benefited by approximately 290 basis points of year-over-year growth from Harry Potter VII sales, plus attachments.
- Media revenue increased to $2.09 billion, up 36%, or 32% excluding FX.
- EGM revenue increased to $1.08 billion, up 54% or 51% excluding FX.
- EGM accounted for 33% of worldwide sales in third quarter 2007, up from 30% for the same period last year.

Worldwide unit growth was 32%, and active customer accounts exceeded 72 million, up 17% year over year.

- Worldwide gross profit was $762 million, up 39%.
- Gross margin decreased 45 basis points to 23.4%, primarily due to lowering prices and change in product mix partially offset by increases in the company’s third-party business.
- Worldwide active seller accounts were over 1.2 million, and third party units were 32% of total units versus 30% in the prior year.
- Amazon Prime memberships more than doubled year over year.

Operating Expenses Excluding Stock-Based Compensation

- Fulfillment, marketing, tech and content and G&A combined was $585 million, or 18% of sales, an improvement of 273 basis points year over year.
- Fulfillment was $285 million or 8.7% of net sales, down 31 basis points year over year.
- During the quarter, the company opened new fulfillment centers in Phoenix, Arizona and Saran, France.

Technology and content was $181 million, or 5.6% of net sales, up 122 basis points from a year ago, as Amazon continues to grow into its new level of spending.

- Marketing was $72 million or 2.2% of net sales, up 51 basis points year over year.
- In recent years, marketing spend has been between 2.2% to 2.7% of net sales.

Segment Results

Consistent with prior periods, the company does not allocate the segments or stock-based compensation or other operating expense line items.

In the North America segment, revenue grew 4% to $1.79 billion, the highest growth rate in seven years.

- Media revenue grew 38% to $1.08 billion.
- EGM revenue grew 54% to $631 million, representing 35% of North American revenues, up from 33%.
- The company saw another quarter of strong sales in electronics, toys and baby, and soft goods which includes jewelry, apparel, shoes and sporting goods.

North American gross profit grew 34% to $460 million, and gross margin lost 159 basis points to 25.7%, due to lower prices and changes in product mix.

- North American segment operating income increased 263% to $79 million, a 4.4% operating margin.
- In the international segment, revenue was $1.47 billion, up 40% or 33% adjusted for the $72 million favorable foreign exchange impact.
- Media revenue grew 33% to $1.01 billion or 27% excluding FX.
- EGM revenue grew 54% to $448 million or 45% excluding foreign exchange.

International gross profit grew 47% to $302 million, or 39% excluding FX.