Amazon Shares Plunge After Results Disappoint Wall Street

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Chris Ratcliffe / Bloomberg via Getty Images

Online e-commerce giant Amazon continues to grow rapidly, but the company’s increasing expenses are taking a bite out of its profit. On Tuesday, the company reported fourth-quarter earnings results that missed Wall Street expectations and said it could lose money in the current quarter, sending the company’s shares down nearly 10% in after-hours trading.

The main culprit was Amazon’s operating expenses, which increased 38% percent, cutting into the company’s profit. Amazon has been investing heavily in order to grow its business, including striking new digital-content deals and building new order-fulfillment centers across the country. Those investments have dragged down Amazon’s profit margins, which is one of the reasons the company’s typically high-flying stock has drooped nearly 20% over the last three months.

Overall, the company’s net income was $177 million, down 57 percent from $416 in the year-ago period. Revenue came in at $17.4 billion, an increase of 35%, driven by strong volume over the holidays. But even that number fell $1 billion short of analysts’ expectation of $18.4 billion, as polled by financial research firm FactSet.

Amazon’s outlook for the quarter — revenue of $12 billion to $13.4 billion — also disappointed analysts, who has been expecting the company to predict sales of $13.42 billion. As a result of its robust operating expenses, the company said it could lose as much as $200 million in the current quarter.

“Amazon is not a cheap stock, so any type of disappointment, we typically see a pretty meaningful reaction by the market,” James Lee, analyst at Credit Agricole, told Reuters.

On the bright side, the company said that sales of its Kindle products tripled compared to the holiday season one year ago. “We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe,” said Amazon CEO Jeff Bezos in a statement.

Many analysts believe that Amazon is selling the Kindle Fire — which retails for $199 — at or near a loss in order to get the devices into consumers’ hands. The company hopes the device will put a dent into sales of Apple’s wildly popular iPad device, as well as serve as a platform for consumers to load up on digital books and other content.

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