Amazon.com Shares Dive on Sales News
Amazon.com, the world’s largest Internet retailer, disappointed investors Wednesday with the news that its fourth-quarter sales rose less than some analysts had predicted and with a warning that its losses will continue.
Amazon shares, which had been losing ground since late last month, tumbled 15% on the news. Since Dec. 20, when Amazon founder Jeff Bezos appeared on Time magazine’s cover as its “person of the year,” the company’s share price has fallen more than 28%.
Amazon said its sales more than doubled to about $650 million, from $252.9 million a year earlier, for the quarter ended Dec. 31. Some analysts, including John Segrich of CIBC World Markets, had forecast that demand for holiday gifts could push sales for the quarter as high as $700 million.
Even more disappointing was the company’s warning that the strong sales would do nothing to narrow its loss. Amazon’s determination to carry large inventories to ensure brisk deliveries of ordered goods will lead to unexpectedly high write-downs because of merchandise overstocks.
Shares in the Seattle-based retailer, which has lost more than $550 million since it began selling books in 1995, plunged $12.19 to $69.75 on Nasdaq on Wednesday, their lowest level in two months and biggest one-day fall since April.
“As every quarter goes by, people call into question whether or not they can make money,” said Adams Harkness Hill analyst Scott Van Winkle, who rates the stock “market perform.”
Although Amazon has long been a darling of Wall Street analysts who follow the Net sector, many of those analysts have started expressing misgivings at its inability to stem rising costs and show a clear path to profitability.
“We Believe” was the heading on a research report issued last month by brokerage Salomon Smith Barney, but the report criticized Amazon for failing to improve its operating margins and cut its heavy marketing costs. For all that, though, the brokerage still rated the stock a “buy.”
Amazon went “all-out to make sure we delivered for customers this holiday season,” a statement from Chief Financial Officer Warren Jenson said. “As a result, our higher seasonal sales will not translate into lower net losses in the fourth quarter.”
Sales of electronics, toys and other items that Amazon began marketing in mid-year accounted for more than half its fourth-quarter revenue, Amazonsaid. That was not necessarily unexpected, because many of those items carry higher price tags than the books that have been Amazon’s mainstay since the company opened in mid-1995.
Amazon declined to say Wednesday how much of a charge it will take for the fourth quarter; it will release complete quarterly results Feb. 2.The charge is the result of its stockpiling toys, electronics and other newly added products ahead of the holiday season.
Reserves for excess merchandise probably were not enough to cover leftover inventory, said Prudential Securities analyst Mark Rowen said. Amazon probably couldn’t return to manufacturers any leftover toys or electronics, which it started selling in July. The retailer had $118.8 million of inventory as of Sept. 30.
“Unlike the book business, they can’t return those at the end of the season,” said Rowen, who rates the stock “hold.” “Anything they don’t sell, they have to take markdowns on.”
More than 38 million Amazon.com shares were traded, triple the three-month daily average. The stock has dropped from a recent intraday high of $113 on Dec. 9.
“They still have a flawed business model,” said Charles Crane, chief market strategist at Key Asset Management. “Selling below cost and hoping to make it up on volume is not the best way to run a business.”
The company is not expected to make money until 2001 or 2002, analysts and investors have said. Bezos has said he will spend more on marketing and adding products and regions to remain the dominant Internet retailer.
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Rolling Downstream
Amazon.com shares have lost 34% of their value since they peaked Dec. 10--and the stock has fallen 28% since Jeff Bezos, its chairman and CEO, was named Time magazine’s “person of the year” Dec. 20. Daily closes and latest:
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Source: Bridge News
