Ama­zon shares plunge as profit misses es­ti­mates

The Pak Banker - - COMPANIES/BOSS -

Ama­zon.com Inc posted its most prof­itable quar­ter ever on Thurs­day but the world's No. 1 on­line re­tailer still man­aged to dis­ap­point Wall Street by badly miss­ing es­ti­mates, send­ing its shares down more than 13 per­cent in af­ter-hours trad­ing.

The re­sults, as well as the com­pany's de­ter­mi­na­tion to in­vest more in new ar­eas and its ex­tremely low profit mar­gins, brought back peren­nial ques­tions for in­vestors about the com­pany's abil­ity to con­sis­tently earn money.

"By com­par­a­tive retail stan­dards, Ama­zon's level of prof­itabil­ity is still painfully weak," said Neil Saun­ders, head of retail an­a­lyst firm Con­lu­mino, who is still pos­i­tive on Ama­zon's prospects. "For ev­ery dol­lar the com­pany takes, it makes just 0.75 of a cent in profit."

Ama­zon's net profit for the fourth quar­ter, which in­cludes the hol­i­day shop­ping sea­son, rose to $482 mil­lion, or $1.00 per share, in the quar­ter ended Dec. 31, up from $214 mil­lion, or 45 cents per share, a year ear­lier.

That fig­ure was held back by ris­ing op­er­at­ing costs. It was well below an­a­lysts' av­er­age fore­cast of $ 1.56 per share, ac­cord­ing to Thom­son Reuters I/B/E/S.

The com­pany's shares plunged 13 per­cent to $551.50 af­ter hours on Thurs­day, fol­low­ing a 9 per­cent in­crease in reg­u­lar trad­ing. They are still up 80 per­cent over the past 12 months.

Ama­zon notched its third con­sec­u­tive prof­itable quar­ter for the first time since 2012, but it still left Wall Street want­ing more.

"The growth story that in­vestors were look­ing for... clearly Ama­zon has not been able to live up to the hype," said Adam Sarhan, chief ex­ec­u­tive of Sarhan Cap­i­tal.

Net sales rose 21.8 per­cent to $35.75 bil­lion, but missed an­a­lysts' ex­pec­ta­tions of $35.93 bil­lion.

Ex­clud­ing a $1.2 bil­lion un­fa­vor­able im­pact from year-over-year changes in for­eign ex­change rates through­out the quar­ter, net sales in­creased 26 per­cent com­pared with the fourth quar­ter of 2014.

Ama­zon Chief Fi­nan­cial Of­fi­cer Brian Ol­savsky de­fended the com­pany's re­sults on Thurs­day, adding that for­eign ex­change rates had an un­ex­pect­edly large im­pact, but over­all the com­pany had "a very strong quar­ter and a strong year."

Net sales from its cloud ser­vic- es busi­ness, Ama­zon Web Ser­vices, rose 69.4 per­cent to $2.41 bil­lion, com­pared with a growth of more than 78 per­cent in the third quar­ter. AWS con­tin­ues to be the fastest grow­ing divi­sion within Ama­zon.

The com­pany's to­tal op­er­at­ing ex­penses rose more than 20 per­cent to $34.64 bil­lion in the fourth quar­ter.

Ol­savsky re­it­er­ated Ama­zon's ex­pec­ta­tion to make con­tin­ued in­vest­ments in its cloud divi­sion and ex­pand its of­fer­ing for Prime mem­bers with faster de­liv­ery and more orig­i­nal video con­tent.

"The in­vest­ments will ebb and flow over time, but our fo­cus on cost re­duc­tions and im­prove­ment on cus­tomer ex­pe­ri­ence will be con­stant," he said.

Ama­zon has his­tor­i­cally sac­ri­ficed profit, in­stead dou­bling down on in­vest­ment in growth ar­eas like Prime and AWS. Ama­zon founder Jeff Be­zos has called th­ese "big bets" that are the cor­ner­stone of the on­line re­tailer's growth.

As a sign of its un­der­ly­ing growth, the Seat­tle-based com­pany now em­ploys 230,800 staff, many of them in its ware­houses, up 50 per­cent from 154,100 a year ago.

Ama­zon's net ship­ping costs surged 37 per­cent in the fourth quar­ter as it han­dles more de­liv­er­ies for its third-party mer­chants. The com­pany said the num­ber of sellers us­ing the Ful­fill­ment by Ama­zon (FBA) pro­gram grew by more than 50 per­cent last year.

Ama­zon has been spend­ing on rolling out sev­eral new ser­vices for mem­bers of its $99-a-year Prime loy­alty pro­gram, in­clud­ing one­hour de­liv­ery and orig­i­nal TV pro­gram­ming, to at­tract cus­tomers in a highly com­pet­i­tive on­line shop­ping mar­ket.

The com­pany said on Thurs­day world­wide paid Prime sub­scribers grew 51 per­cent. Ama­zon's Prime pro­gram is es­ti­mated by some an­a­lysts to have around 50 mil­lion mem­bers world­wide.

Ama­zon fore­cast sales for the first quar­ter of be­tween $26.5 bil­lion and $29 bil­lion, or up be­tween 17 per­cent and 28 per­cent com­pared to the same quar­ter last year. It fore­cast op­er­at­ing in­come be­tween $100 mil­lion and $700 mil­lion, com­pared to $255 mil­lion in the first quar­ter last year.

An­a­lysts had fore­cast $27.6 bil­lion in sales and $400.3 mil­lion in profit. "The stock is get­ting killed be­cause the Street is too high on next year," said Wed­bush Se­cu­ri­ties an­a­lyst Michael Pachter.

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