Amazon’s net doubles in the 4th quarter
Amazon.com Inc. reported Wednesday that fourth-quarter earnings more than doubled with strong holiday sales, and it forecast higher revenue this year than Wall Street had anticipated.
But investors reacted as if they had received coal in their stockings when the world’s largest Internet retailer said profit margins declined in the final three months and would probably be lower this year.
Shares had gained 26 cents to close at $74.21 before earnings were released but plunged as much as 12% in after-hours trading to $65.29.
Quarterly net income was $207 million, or 48 cents a share, compared with $98 million, or 23 cents a share, in the year-earlier quarter. Sales for the quarter, typically its strongest of the year, rose 42% to $5.7 billion from $4 billion a year earlier as international sales outpaced U.S. sales.
Investors had hoped that a dramatic jump in Amazon’s sales would boost its closely watched gross profit margin.
Weaker profit margins in the past have meant the Seattle company was reinvesting profit into its business. Chief Executive Jeff Bezos said Amazon would continue to reinvest.
That has translated into big product pushes, such as its digital music store launched in September to compete with Apple Inc.'s iTunes and its Kindle electronic book reader. Neither endeavor is expected to generate large revenue in the near future. But executives said that Kindle was “outpacing our expectations” and that the company was scrambling to increase production.
“They want to be the source for everything on the Internet,” said analyst Brian Bolan at Jackson Securities. “The probability is, margins will continue to decrease as they enter new spaces and add new categories.”
Tom Szkutak, Amazon’s chief financial officer, declined to elaborate on how a slowdown in consumer demand might affect the company, which sells books, electronics and other goods.
“Our business is good,” he said in a conference call. Recession fears have dragged down Amazon’s stock in recent weeks. Investors were concerned that Amazon’s rosy projections for online sales might be unrealistic given that a slowdown in consumer demand is stoking fears of a U.S. recession, said Sanford C. Bernstein & Co. analyst Jeffrey Lindsay.
“Amazon is anticipating that sales will hold up,” Lindsay said. “We will see how that theory plays out in practice.”
Quarterly sales of books, music and movies grew 33% to $3.3 billion; electronics and general merchandise revenue rose 58% to $2.2 billion.
Amazon is “eating EBay’s lunch . . . every one of their competitors’ lunches,” said analyst Tim Boyd at American Technology Research.
For the year, Amazon earned $476 million, or $1.12 a share, more than double the profit of $190 million, or 45 cents a share, for the previous year. Annual sales rose to $14.8 billion from $10.7 billion.
For the first quarter this year, executives forecast sales of $4 billion to $4.2 billion. For the year, they predicted sales of $18.8 billion to $19.8 billion. Analysts had expected first-quarter sales of $3.9 billion and annual sales of $18.3 billion.
Times wire services were used in compiling this report.