Amazon.com made reading the economic tea leaves a little more difficult Wednesday with the news that its profit more than doubled in the...
Amazon.com made reading the economic tea leaves a little more difficult Wednesday with the news that its profit more than doubled in the fourth quarter.
The Seattle Internet giant said it enjoyed strong holiday sales despite reports of a disappointing season overall.
“We are probably not in the best position to be talking about the economy,” Chief Financial Officer Tom Szkutak said during a conference call with reporters. “In terms of our business, we are doing fine.”
But shares of Amazon declined more than 11 percent in after-hours trading Wednesday amid concerns about the company’s profit margins. Shares ended the regular session up 26 cents at $74.21 before Amazon released its results.
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“Amazon seems to go through these cycles where they improve their profit margins and then fall back,” Aaron Kessler of Piper Jaffray told MarketWatch.
Amazon posted a profit of $207 million, or 48 cents a share, for the three months that ended Dec. 31, in line with Wall Street’s expectations. That represented a 112 percent increase from $98 million, or 23 cents a share, a year ago.
Also, Amazon saw its sales increase 42 percent to $5.67 billion, slightly better than the $5.37 billion that analysts polled by Thomson Financial had predicted.
But Wall Street seemed underwhelmed by Amazon’s profitability. Fourth-quarter operating income rose 38 percent to $271 million, for an operating margin of 4.8 percent, a tenth of a percentage point down from a year ago.
Amazon predicts operating income for 2008 will be between $785 million and $985 million. Analysts expected $958 million in operating income, above Amazon’s midpoint of $885 million, signaling that the company plans to reinvest profits back into the business.
“They continue to benefit from robust growth,” said Colin Sebastian, who follows Amazon for Lazard Capital Markets in San Francisco. “But investment in their platform and lower prices for consumers means their margins are not expanding as fast as Wall Street was hoping.”
Still, others looking for a glimmer of hope amid talk of a possible U.S. recession could find it in Amazon’s fourth-quarter sales results.
The 2007 holiday season proved a challenging one for many retailers, with year-over-year sales growth of just 3 percent for November and December, the lowest increase since 2002, according to the National Retail Federation.
Amazon, meanwhile, enjoyed double-digit sales growth across major segments of its business. North American sales, which cover the U.S. and Canada, rose 40 percent from a year ago to $3.08 billion during the fourth quarter. International sales, which include the U.K., Germany, Japan, France and China, were even better, increasing 46 percent to $2.59 billion.
During the final three months of 2007, Amazon introduced the Kindle, a device for downloading and reading books in digital format; invested in Bill Me Later, which allows consumers to make purchases online without a credit card; expanded its new MP3 digital music store; and announced plans to lease up to 1.6 million square feet of office space at a new campus in South Lake Union.
Tim Boyd, an analyst at American Technology Research, told The Associated Press that Amazon’s digital-music business might be losing money as it gets going. Boyd also said the company probably will use some of its cash to fend off eBay, a competitor for its third-party seller business, with investments in technology and content.
“A lot of old Amazon bears are going to be growling tomorrow,” he said.
Amy Martinez: 206-464-2923 or email@example.com.
Material from The Associated Press is included in this report.