Amazon Changes Investment Deals with Retailers

In a sign of the times for e-commerce ventures that are struggling to become profitable, Amazon.com this week disclosed that financial agreements with some other online retailers in which it has invested are being restructured after the companies asked for changes such as reductions in the cash payments they make to Amazon.

In a filing submitted to the U.S. Securities and Exchange Commission lastWednesday, Amazon said it has adjusted the amortization of previously unearned revenue to reflect the changes -- a move that led to a $US2.9 million reduction in the amount of revenue that it recognized from the investment deals in the second quarter.

Amazon didn't identify the companies that asked to have their investment deals restructured. But it said the changes involve online retailers that have signed up to participate in the Amazon Commerce Network (ACN), a program under which it invests in other e-commerce companies. ACN members include Drugstore.com Inc., HomeGrocer.com and Pets.com, according to a list posted on Amazon's Web site.

According to the Form 10-Q filing to the SEC detailing its second-quarter results, Amazon received a total of $US24.3 million in revenue from its ACN partners in the three-month period that ended in June. From an investment perspective, though, Amazon said it recorded $US109.9 million in equity-method losses related to the ACN program during the second quarter.

Amazon last week reported a net loss of $US89 million for the second quarter, an announcement that came days after Joseph Galli Jr. said he was leaving after just 13 months at the company. The Seattle-based online retailer was back in the news earlier this week because of a pricing glitch that led some toys to be priced incorrectly on its Web site.

Alan Alper, an analyst at Gomez Advisors in Lincoln, Massachussets., said it's important to look at the financial prospects of online retailers such as Amazon and its ACN partners in the same way that brick-and-mortar companies are viewed.

None of the companies that Amazon has invested in are close to failing, Alper said, adding that many have seasonal businesses that should pick up in the fourth quarter. But e-commerce ventures remain subject to the normal economic development of a market, in which a few dominant companies and some specialty vendors prosper while the rest fall by the wayside, Alper noted.

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