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Amazon Blows It; Shares Tank

Published on October 25, 2011
by John Paczkowski

Looks like Wall Street’s high hopes for Amazon’s third-quarter earnings were a bit too high. After market close Tuesday, the retailer turned in a top and bottom line miss, reporting earnings that slipped some 73 percent.

Net income for the period was $63 million, or 14 cents a share, compared to $231 million, or 51 cents a share, for the same period the year prior. Revenue rose 44 percent to $10.88 billion. Sadly for Amazon, analysts had been expecting earnings of 24 cents a share on revenue of $10.9 billion, according to consensus estimates from Thomson Reuters.

Looking ahead to the all-important fourth quarter, which includes the holiday shopping season and the upcoming launch of the Kindle Fire, Amazon said it sees sales of between $16.45 billion and $18.65 billion. The street had been looking for $18.15 billion. Operating income is expected to range from between a $200 million loss to a positive $250 million. In Q3, operating income was $79 million, down from $268 million a year ago.

Investors are pummeling the company in after-hours trading, dragging its shares down about 18 percent.

One bit of good news: CEO Jeff Bezos said in a statement that the company is seeing huge demand for the Fire. “In the three weeks since launch, orders for electronic ink Kindles are double the previous launch,” Bezos said. “And based on what we’re seeing with Kindle Fire preorders, we’re increasing capacity and building millions more than we’d already planned.”

In other words, Amazon underestimated demand for the Fire and is ramping up accordingly. Could that be part of the reason behind today’s earnings miss? Certainly possible. Recall that according to some reports, Amazon is likely losing about $50 per Fire.

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