Amazon Falls After Forecasting Quarterly Operating Profit Below Estimates
Amazon.com Inc. (AMZN) rose the most in 18 months on the Nasdaq after reporting sales that topped analysts’ predictions, fueling optimism that a surge in spending on warehouses and data centers will result in faster growth.
Revenue last quarter rose 38 percent to $9.86 billion, beating the $9.54 billion average prediction of analysts in a Bloomberg survey.
Amazon Chief Executive Officer Jeff Bezos is using a swelling cash hoard to promote the Kindle book reader, erect distribution centers and add equipment that delivers computing via the Internet. Last quarter marked the eighth straight period of rising capital spending. While the increase is eroding profitability, it’s helping Amazon expand into new markets, such as cloud computing.
“Despite the massive amounts they’re investing, they’re doing the right thing long term,” said Gene Munster, an analyst at Minneapolis-based Piper Jaffray & Co.
Capital spending more than doubled to $298 million last quarter, contributing to an operating profit forecast that missed analysts’ projections for a fifth consecutive period.
Operating income, which excludes taxes and interest, will be $95 million to $245 million this quarter, the Seattle-based company said yesterday. Analysts surveyed by Bloomberg predicted, on average, operating income of $369.5 million.
Amazon rose $14.33, or 7.9 percent, to $196.63, reversing a decline of as much as 9.1 percent in extended trading yesterday. The increase was the biggest gain since Oct. 23, 2009. The shares have advanced 9.3 percent this year.
Analysts said that continued investment in technology to accommodate “robust” product growth will pay off down the road, according to notes today. Deutsche Bank AG analyst Jeetil Patel upgraded the stock’s price target to $215 from $192.
The retailer is carrying out plans to build nine warehouses this year, and Amazon may build more if consumer demand continues to grow at the current pace, Chief Financial Officer Tom Szkutak said on a conference call. The company also boosted marketing spending for the Kindle.
Amazon is one of the few companies with revenue exceeding $20 billion that has the potential to sustain sales expansion of more than 20 percent, Jason Helfstein, an analyst at New York- based Oppenheimer & Co., said today in a report. He also upgraded the company, raising price expectations to $220 from $200.
The company will continue to see 20 percent growth beyond 2010 because of “an improving macro environment, entrance into new product categories, the integration of Zappos.com, and growth in the e-reader market” said Helfstein, who rates the stock “outperform.”
Operating margins narrowed to 3.3 percent, the lowest in 18 quarters. Net income in the first quarter fell to $201 million, or 44 cents a share. That compared with the 61 cents that analysts predicted. Amazon doesn’t forecast net income.
“Amazon is doing a lot of experimentation right now,” Ken Sena, an analyst at Evercore Partners Inc. in New York, said in a televised interview on “Bloomberg West.” “They also have a long-term view. It requires patience on the part of investors.”
As it expands, Amazon is running into disputes with states such as California, New York and North Carolina, which want to collect sales tax from it. Amazon has facilities in about 20 states, said Heath Terry, an analyst at Canaccord Genuity, in a report this week. Amazon says it only charges a sales tax in five states.
Amazon may miss out on as much as $520 million in revenue this year if a change in U.S. policy forces it to collect sales taxes, according to data compiled by Bloomberg. Such a law may curb about $7 billion in domestic online purchases.
The company got its start in 1995 as an online bookseller. It has since expanded into thousands of products -- everything from DVDs to baby clothes. Amazon Web Services, which lets customers rent computer capacity to house data and run computer applications, may one day be as big as the retail business, the company has said.
Amazon may have sold more than 8 million Kindles last year, accounting for about 5 percent of sales, according to Benchmark Co. Amazon doesn’t disclose Kindle sales figures, other than saying it’s the company best-selling product.
Amazon more than doubled capital expenditures to $979 million last year and will spend about $900 million this year as part of its effort to expand warehouses and data centers, according to January estimates from James Mitchell, an analyst at Goldman Sachs Group Inc.
“Current investments will generate growing competitive advantages, significant market-expanding opportunities and ancillary growth drivers like Amazon Web Services,” Terry said in a report. “That will more than offset the impact of lower margins near term.”
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