Amazon.com Inc. predicted second-quarter earnings that missed analysts’ estimates, signaling the Web retailer isn’t benefiting from a rebounding economy as much as some investors had expected as competition intensifies.
The stock fell as much as 7.1 percent in late trading after Amazon.com today said operating income will be $220 million to $320 million. Analysts in a Bloomberg survey predicted $322.2 million on average.
Strong earnings reports from competitors including Best Buy Co. and Apple Inc. had led investors to expect that Amazon.com would predict higher earnings, said Colin Gillis, an analyst at BGC Financial LP. The company is struggling to extract favorable pricing from its suppliers who, with improving demand, don’t have to offer it as many discounts, he said.
“The stock was priced for perfection, for a major earnings upside surprise,” said New York-based Gillis, who recommends selling the shares and said he doesn’t own any.
Amazon.com, based in Seattle, dropped as much as $10.59 to $139.50 in late trading after closing at $150.09 on the Nasdaq Stock Market. The stock has climbed 90 percent in the past year, double the gain by the Standard & Poor’s 500 Index.
First-quarter net income rose to $299 million, or 66 cents a share, from $177 million, or 41 cents, a year earlier. Analysts in a Bloomberg survey estimated 61 cents on average. Sales increased to $7.13 billion.
Revenue this quarter will be $6.1 billion to $6.7 billion, Amazon.com said. Analysts had predicted $6.84 billion on average for the first quarter and $6.4 billion for the second quarter.
Amazon.com, which started about 15 years ago as an online book retailer, is facing tougher competition from rivals such as Apple as consumers shift to digital music and books as well as downloadable movies.
“Amazon is not likely to experience the same profitability and leadership position in digital media that it enjoys selling physical books, movies and music,” Gillis said before the earnings report.
Amazon.com began selling its Kindle digital reader in about 100 Target Corp. stores this week to fend off rival products from Apple and Sony Corp. Apple’s iPad, introduced this month, lets users browse the Web, watch videos and read e-books. Sony also makes e-readers, which consumers can buy at 10,000 U.S. retail stores including Target, Staples Inc. and Costco Wholesale Corp.
Amazon.com introduced the Kindle in 2007 and gained dominance of the market for electronic books amid a dearth of competing devices. The iPad, which lets users buy books from Apple’s online store, sold more than 500,000 devices in the first week after its U.S. debut, exceeding Apple’s expectations.
Amazon.com controls about 90 percent of e-book sales, according to estimates by Credit Suisse Group AG. The iPad and other devices will cut its share to about 72 percent this year, Credit Suisse said.
Amazon.com said sales in North America increased 47 percent to $3.78 billion last quarter. Sales from international operations, including those in the U.K., Germany, Japan, France and China, rose 45 percent to $3.35 billion.
Global media sales, which includes books and digital music, advanced 26 percent to $3.43 billion.
To spur sales of other merchandise, Amazon.com has expanded membership in Amazon Prime, which lets consumers get expedited shipping on items for $79 a year. The program is an important growth driver for the company, according to Jim Friedland, an analyst at Cowen & Co. The retailer has also added Lucky Brand, Levi’s and 7 For All Mankind jeans to the site.
“It was a strong quarter but expectations were fairly high for Amazon,” said Aaron Kessler, an analyst for Kaufman Bros. in San Francisco. He recommends buying the stock and said he doesn’t own it.