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Tuesday, January 31, 2012

Retail / Money / Teh Internets Amazon Disappoints Wall Street on Lower than Expected Sales and Falling Margins

Posted by Goldy on Tue, Jan 31, 2012 at 2:51 PM

So, you know that old joke about the retailer who sells items below cost, but claims he'll make it up on volume? Well, Amazon's latest earnings report is kinda like that:

Amazon.com Inc. (AMZN), the world’s largest Internet retailer, missed analysts’ fourth-quarter revenue estimates and reported a 57 percent decline in profit, dragged down by shipping costs and the money-losing Kindle Fire.

Sales rose 35 percent from the previous quarter to $17.4 billion, but that fell short of the $18.3 billion Wall Street consensus. Net income fell to $177 million, or 38 cents a share, down from $416 million and 91 cents in the year ago quarter. That actually beat analysts consensus projection of 16 cents a share.

But perhaps what most disappointed Wall Street was the soft guidance for the current quarter, which came in at between $12 billion and $13.4 billion in sales, and a possible quarterly loss, compared to the $13.4 billion to $14.9 billion analysts had been projecting. Shares fell about 10 percent in after-hours trading.

As for the Kindle, Amazon says it sold 177 percent more units than in the previous holiday quarter, but once again didn't release any actual numbers. That's a healthy increase, but I'm wondering if it's as healthy as most observers expected?

In any case, Amazon CEO Jeff Bezos doesn't seem to be too worried about slim margins or quarterly results, instead choosing to sacrifice short term profits as part of a long term strategy. Time will tell.

Comments (8) RSS

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This sounds like you think they should be sacrificing long term strategy in favor of short term profits. Is that what you meant?

Posted by Patti on January 31, 2012 at 3:01 PM

I'm guessing what Goldy means is that they'll pull the "it's part of the long-term strategy" argument to explain a miss this big. Which will, of course, completely reassure those Wall Street investors, who are well known for thinking and investing for the long-term (say, measured in milliseconds) rather than just chasing quarterly profits.

Posted by maddogm13 on January 31, 2012 at 3:04 PM

@1, Um... I don't see how you infer that from what I wrote.

That said, I don't think the Kindle strategy is a sure thing.

Posted by Goldy on January 31, 2012 at 3:24 PM

Amazon may have lost money -- a one-time loss -- when my Kindle Fire was bought (a gift), but every book, magazine and app I buy is revenue in their pocket. I think their strategy is sound.

But as @2 points out, Wall Street only cares about the most recent quarter and its own "expectations."

Posted by bigyaz on January 31, 2012 at 3:29 PM

I bought a $79 Kindle in October and I must have spent at least $80 on books since then (I buy cheap ones from the under $3.99 section).

Since he sells Kindles at near cost, he made a $80 additional revenue minus the COGs for the ebooks.

Posted by Supreme Ruler Of The Universe

on January 31, 2012 at 3:34 PM

poor, poor wall street.

Posted by r.chops on January 31, 2012 at 3:47 PM

This has been their buisness model since Day 1. Lose money up front and count on future profits. The Kindle is just the newest wrinkle inthe product mix,

Posted by M. Wells on January 31, 2012 at 4:43 PM

I'd rather shop at Amazon than J.C. Penney.

Posted by WestSeven on January 31, 2012 at 5:47 PM