Despite Gain in Profit, Amazon.com Falls Short of Estimates
Despite strong holiday sales, online retailer Amazon.com Inc. on Wednesday reported fourth-quarter earnings that disappointed Wall Street and warned of thinning margins in the year ahead.
Shares fell 14% in after-hours trading.
For the three months ended Dec. 31, Amazon’s profit climbed to $346.7 million, or 82 cents a share, compared with $73.2 million, or 17 cents, in the same period a year ago. Sales rose 31% to $2.54 billion.
But much of Amazon’s profit growth stemmed from a one-time tax-related benefit of $244 million. Excluding that, the Seattle-based company earned $149 million, or 35 cents a share -- 5 cents lower than the consensus estimates of analysts polled by Thomson First Call.
For all of 2004, Amazon’s net income was $588.5 million, or $1.39 a share, compared with $35.3 million, or 8 cents, the year before. It was Amazon’s second profitable year since the company opened its virtual doors in 1995. Sales rose 32% to $6.92 billion.
Although Amazon executives forecast sales growth of 18% to 27% in 2005, they cautioned that margins probably would erode as the company continued to discount merchandise and offer cheap shipping.
The problem, said Legg Mason Wood Walker Inc. analyst Scott Devitt, is increased competition for online buyers.
Amazon, he said, is “in a price war. Traditional retailers are increasingly making their prices competitive with online. And there are an increasing number of small online retailers that in aggregate become a competitive force. Amazon is in the middle, getting squeezed by both of them.”
Amazon shares fell 60 cents, or 1.4%, to $41.88 in regular Nasdaq trading. After the earnings announcement, they sank to $35.60 in after-hours trading.
Investors are apparently growing impatient with Amazon, which has fallen short of analysts’ expectations for the last three quarters.
“It was a very strong quarter on an absolute basis,” said Tim Ghriskey, who oversees $650 million -- including Amazon shares -- at Solaris Asset Management. “But expectations were for much higher earnings.”
Company executives offered little hope that margins would improve in 2005, saying they expected higher costs to inaugurate a search engine and to implement a new shipping price break.
The shipping program, called Amazon Prime, will cost customers $79 a year. For that they get free second-day shipping.
Chief Executive Jeff Bezos said in a conference call to analysts that making shipping “a fixed cost allows people to [buy] without guilt.”
Bloomberg News was used in compiling this report.
