A Holiday Surprise: Amazon Growth Slows

If anything seemed reliable in today’s topsy-turvy retail climate, it’s that Amazon.com would continue to put up shocking rates of revenue growth, lapping rivals in traditional and online commerce.

Today, Amazon surprised its investors by demonstrating growth that was more anemic than usual, thanks in part to a slow holiday season overseas. Sales for the holiday quarter were $25.59 billion, a 20 percent jump from a year ago but missing analyst estimates of $26.08 billion. That 20 percent is the lowest growth rate in several years.

The company also reintroduced to its balance sheet a strange phenomenon that accountants generally describe as net income, but which more conventionally is referred to as “profit.” After losing money in four of the last five quarters, Amazon reported net income of $239 million, or 51¢ per share, below analyst estimates of 69¢ a share.

The weaker-than-expected sales performance appears to be partly the result of soft international growth and a shift to purchases of cheaper digital items from purchases of their physical counterparts. Overseas sales grew 13 percent in the fourth quarter, compared to 21 percent a year ago, while sales grew 26 percent in the U.S. during the holidays.

Amazon is also spending more: some $2.9 billion on fulfillment during the fourth quarter, vs. $2.3 billion in the same period last year, and $1.8 billion on technology and content, vs. $1.3 billion last year.

The stock was down more than 8 percent in after-hours trading.

Amazon Chief Financial Officer Tom Szkutak was asked on a conference call with journalists whether Amazon needs to do a better job guiding Wall Street analysts. Speaking with his typical charisma, suggestive of a revivalist preacher, Szkutak said, “We certainly do our best to communicate the results.” Then he noted that Amazon had delivered toward the upper range of its previous quarterly guidance.

This year’s holiday season left plenty of carnage. Best Buy, Target, and J.C. Penney all disappointed investors with fourth quarter earnings reports. Last week, EBay surged on the growth of its PayPal business and the sudden interest of activist investor Carl Icahn, but it notched a further decline in its troubled marketplace.

Amazon’s revenues for all of 2013 were $74.45 billion, a jump of 22 percent from $61.09 billion in 2012. Amazon is likely to approach or exceed $100 billion in sales this year, which make it the fastest retailer in history to reach that benchmark.

Amazon is still growing faster than its rivals. Retail overall is growing at 4 percent, according to the U.S. Census Bureau, while online retail is growing by about 11 percent. That means Amazon continues to take market share from both offline and online competitors. The company also made a profit of $274 million for the year, compared with a loss of $39 million last year.

Over the last three months, Amazon has been busy. In addition to meeting holiday demand and almost breaking the supply chains of logistics partners such as UPS, it introduced Sunday delivery in partnership with the U.S. Postal Service, announced some far-fetched drone dreams on 60 Minutes, and started selling new models of its Kindle Fire tablet.

Jeff Bezos does not typically participate in Amazon’s quarterly earnings ritual, but he does contribute a quotation that speaks more to customers than Amazon shareholders. Here it is: “It’s a good time to be an Amazon customer. You can now read your Kindle gate-to-gate, get instant on-device tech support via our revolutionary Mayday button, and have packages delivered to your door even on Sundays,” said Bezos in the note. “In just the last weeks, Forrester, YouGov, and ForeSee have all ranked Amazon #1—and we believe we’re just scratching the surface of what world-class customer service can be.”

Before it's here, it's on the Bloomberg Terminal.