Amazon’s Stock Fizzles as Holiday Sales Fail to Catch Fire

Amazon’s fourth-quarter results fell short of expectations, despite robust holiday spending and the launch of the company’s first tablet computer, the Kindle Fire.

The company earned $177 million, or 38 cents a share, on revenue of $17.43 billion.

Even though revenue was up 35 percent compared to the year-ago period, it fell short of Wall Street estimates. Fueling the bad news, Amazon also said net income fell 58 percent.

Amazon’s stock tumbled in after-hours trading, falling nearly 10 percent, or $19 a share, to $175.50. The stock recovered a tiny bit later in the session, trading down 8.8 percent.

Analysts had expected Amazon to report sales of $18.3 billion, up more than 40 percent from the fourth quarter in 2010, according to FactSet Research.

For the full year 2011, the company’s sales increased 41 percent to 48.1 billion, while net income fell 45 percent to $631 million, or $1.37 a share.

The Seattle-based e-commerce company, which is notorious for offering little insight into its results, did not stray from standard operating procedure. It’s still unclear how many Kindles and how many Fire tablets it is selling.

“We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe,” said Jeff Bezos, CEO of Amazon.com, in a statement.

But it did not get any more detailed than “millions.” The company added that during the nine-week holiday period ended Dec. 31, Kindle sales — including the Fire — increased 177 percent over the same period last year. Furthermore, the Fire was Amazon’s most-gifted and most-wished-for product.

The big wild card for the quarter was not supposed to be revenue, but margins. The low margins of the Fire, and the company’s gigantic investments in infrastructure spending, such as warehouses, were expected to weigh down earnings.

Analysts were estimating that Amazon’s operating margin would fall to 1.3 percent from 3.6 percent last year.

Sure enough, the company’s margins were down, but it wasn’t quite as bad as people thought it would be. Actual operating margin for worldwide sales during the quarter fell to 1.5 percent.

Many investors were hopeful that some of those investments would wane in the first quarter, as Amazon started to reap the profits. However, the company’s first-quarter guidance is also less than expected.

Net sales are expected to be between $12 billion and $13.4 billion, representing year-over-year growth of 22 percent to 36 percent. Amazon is also expecting an operating loss of $200 million to a profit of $100 million, suggesting that heavy investments could continue.

NOTES FROM THE EARNINGS CALL

  • After a riveting rundown of the company’s balance sheet and income statement, Amazon is opening up the call for questions.
  • First question everyone wants the answer to: Can you talk about Kindle hardware units? A non-answer: “The only thing I can help you with is the holiday season — unit sales nearly tripled with Kindle and Kindle Fire, so we are very pleased with the growth we have,” says CFO Tom Szkutak.
  • In North America, Amazon saw strong growth in digital media, for books, video and music. “All of those grew really well,” Szkutak says, but he said that most notably the videogame category, including consoles and games, was up in terms of unit volume, but down in terms of revenue.
  • Another media area that grew was physical books, which were up double digits in the fourth quarter year over year. “We are very pleased, considering the shift to digital content and the rapid growth of the Kindle.”
  • Seventeen fulfillment centers were built in 2011, and more are coming in 2012, but no precise numbers yet.
  • In Q4, the company had 56,200 employees, up 67 percent year over year. “The majority of those increases is in operations and the customer service area. It supports a lot of the growth, and you are seeing that in our operating costs. Certainly you’ll see that over time go in cycles, but we are feeding the growth we are seeing.”
  • A question about whether Amazon will slow down its level of investment. “No. No. We learn every week, month and quarter about customer adoption, and we are looking at a lot of positive things across the business, including Kindle growth from the device standpoint, and the content that’s following that,” Szkutak says. “We are seeing strong growth in categories like soft lines, like clothing, and in consumables, and very good growth outside of the supply-constrained areas in consumer electronics. … There’s a lot of interesting opportunities to invest in, and we are pleased with the performance in Q4 and what it means going forward for us.”
  • Will investments continue in Amazon Prime? “We are investing a lot there, and we are making sure we understand it very well. We’ll continue to monitor it very closely, and over time, we’ll be sharing more about how we are doing there.”

 


Latest Video

View all videos »

Search »

There’s a lot of attention and PR around Marissa, but their product lineup just kind of blows.

— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google