Amazon Profit Trails Estimates as Holiday Delivery Costs Rise

Photographer: Kristoffer Tripplaar/Sipa USA via AP Photos

Amazon.com's offices in Sunnyvale, Calif. on Jan.1, 2014. Close

Amazon.com's offices in Sunnyvale, Calif. on Jan.1, 2014.

Close
Open
Photographer: Kristoffer Tripplaar/Sipa USA via AP Photos

Amazon.com's offices in Sunnyvale, Calif. on Jan.1, 2014.

Amazon.com Inc. (AMZN), the world’s largest Web retailer, reported fourth-quarter revenue and profit that trailed analysts’ estimates after sales growth slowed outside the U.S. and holiday shipping costs surged.

Net income was $239 million, or 51 cents a share, the Seattle-based company said today in a statement. Analysts on average had projected profit of 69 cents a share, according to data compiled by Bloomberg. Revenue rose 20 percent to $25.6 billion, trailing the $26.1 billion average estimate.

Amazon’s dominance of U.S. e-commerce isn’t translating globally, with international sales growth slowing to 13 percent in the quarter from 21 percent a year earlier. Meanwhile, expenses are climbing as Chief Executive Officer Jeff Bezos pumps money into warehouses to speed shipments, a cost Amazon may try to offset as it considers raising the price of its Prime delivery service for the first time, the company said today.

“What we see is continued growth, but a slowing rate of growth,” said Michael Pachter, an analyst at Wedbush Securities in Los Angeles who rates the stock the equivalent of a hold.

Amazon shares fell as much as 13 percent to $352 in extended trading after the report. The stock gained 4.9 percent to $403.01 at the close in New York and has climbed 48 percent in the past year, more than double the 19 percent advance in the Standard & Poor’s 500 Index.

Net shipping costs in the period jumped 19 percent to $1.21 billion. Fulfillment expenses surged 29 percent to $2.92 billion. Technology and content costs -- for research and development -- increased 38 percent to $1.86 billion

Earnings Questions

“The question is how much investing can Amazon do in long-term R&D while still hitting their earnings targets,” said Gene Alvarez, an analyst at Stamford, Connecticut-based researcher Gartner Inc.

The e-commerce market is expected to climb 15 percent this year to $300.6 billion, according to researcher EMarketer Inc. Cyber Monday, the first Monday after Thanksgiving, was the heaviest Web-spending day on record, with consumers shelling out more than $2 billion, according to ComScore Inc.

The record holiday season brought some snafus as well. Amazon and other retailers issued rebates after United Parcel Service Inc. and FedEx Corp., overwhelmed by demand, were late in delivering some packages to customers.

“It’s entirely possible that they have trained consumers to just buy Christmas presents at the last second, and weren’t prepared for the logistical issues,” Pachter said.

Prime Popularity

Tom Szkutak, Amazon’s chief financial officer, said today on a conference call with analysts that the company is considering raising the price of its $79-a-year Prime service, which includes two-day shipping as well as streaming online movies and books. The company hasn’t raised the price since creating Prime nine years ago, and fuel and shipping costs have increased, he said.

“Customers like the service and they are using it a lot more,” Szkutak said.

Revenue growth slowed last year to 22 percent from 27 percent in 2012 and 41 percent in 2011. Sales in North America jumped 26 percent in the period to $15.3 billion. Operating margin, a metric of profitability, rose to 2 percent from 1.9 percent a year earlier.

The stock rally, which dates back to late 2008, has driven Amazon’s price-to-earnings ratio for the past 12 months to more than 1,400 -- about 85 times higher than the average of companies in the S&P 500. Apple Inc., which earlier this week reported profit of $13.1 billion, trades for 12.4 times earnings.

Loyal Shareholders

Amazon said first-quarter sales will be $18.2 billion to $19.9 billion, compared with the average analyst estimate of $19.7 billion, according to data compiled by Bloomberg. For operating income, results will range from a loss of $200 million to a profit of $200 million.

The company’s loyal band of investors is betting on Bezos’s ability to deliver continued sales growth as Amazon adds online video options, bolsters its line of Kindle devices, wins business customers for its cloud servers and expands its grocery-delivery service. Amazon doesn’t disclose sales of individual products.

Amazon struck a deal with the U.S. Postal Service late last year to deliver packages on Sundays in New York and Los Angeles.

Among analysts tracked by Bloomberg, 36 recommend buying Amazon shares and 11 have hold ratings, while none suggest selling the stock.

“We continue to believe that Amazon will gain share of overall e-commerce and become a more valuable company over time,” wrote Doug Anmuth, a New York-based analyst at JPMorgan Chase & Co., in a report. Anmuth has the equivalent of a hold rating on Amazon.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.