On Oct. 22, Amazon said third-quarter net income surged 68 percent, to $199 million, while revenue jumped 28 percent, to $5.45 billion, compared with Wall Street's estimate of $5 billion. "This looks like holiday-season performance and they're doing it in the third quarter," says Jeff Lindsay, analyst with Sanford C. Bernstein. For the quarter that ends in December, Amazon forecast sales of $8.1 billion to $9.1 billion, compared with $8.19 billion expected by analysts surveyed by Bloomberg News.

The performance and forecast reflect growing demand for the Kindle electronic book reader, which now sells more units and contributes more revenue than any other product on the site, Amazon said. The company doesn't release individual sales numbers for the device, but Citigroup analyst Mark Mahaney estimates that it will sell 1.5 million, worth $700 million. An international edition of the reader went on sale the same day Amazon announced its third-quarter results.

Investors Shrug Off Fears

An after-hours surge in the stock also suggested that investors are shrugging off concerns by some analysts that Amazon may be overvalued compared with eBay, another e-commerce company. In after-hours trading, Amazon shares surged 16.7 percent, to 107.03. During regular trading, before the results were released, the stock barely budged, rising 3 percent, to 93.45.

On Oct. 21, eBay gave investors a relatively gloomy outlook for the holidays when it forecast fourth-quarter earnings of 38 percent to 40 percent a share, compared with 40 percent expected by analysts. The company also forecast sales of $2.2 billion to $2.3 billion, while analysts had expected $2.26 billion.

Customers of Amazon are snapping up not only Kindles, but also digital books that can be stored and read on the devices. Sales at Amazon's media segment, which includes e-books, video games, and digital music, grew 17 percent, to $2.93 billion. That's a big turnaround from the second quarter, when the media division showed no growth. "The explanation is a very strong performance from Kindle books," says Sandeep Aggarwal, analyst with financial-services firm Collins Stewart.

Outpacing Other E-Tailers

Whether Amazon can keep the Kindle magic remains a matter of debate. On Oct. 20, book retailer Barnes & Noble released its own e-book reader, the Nook, which many analysts said is more feature-rich than the Kindle.

Still, Amazon's fortunes ride on far more than e-books. Even as it boosted book sales, Amazon also nabbed share of the larger e-commerce market. While the company has typically outperformed other e-tailers by 19 percent over the past two years, it outpaced the market in the third quarter by 26 percent, according to Piper Jaffray analyst Gene Munster. He says the company is getting smarter at using online advertising to goose sales and knowing which products to promote, and when. "They're gaining share because of experience," he says.
 

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