SEATTLE — Amazon saw its results for the holiday quarter as a present wrapped in a bow. But analysts and investors saw something more like a lump of coal.
The e-commerce giant said on Thursday that its fourth-quarter net income more than doubled, as shoppers continued migrating online for holiday shopping, the company's cloud-computing business boomed and its $99-a-year Prime membership program expanded further.
Still, investors were expecting a tighter hold on costs and even higher net income, which sharply missed expectations. Investors sent shares — which have doubled over the past year — down more than 10 per cent in aftermarket trading.
Amazon's strategy has long been to invest most of the money it makes back into its businesses, particularly by expanding offerings in its Prime loyalty program and its cloud-computing business, called Amazon Web Services. After operating at or near a loss for years, it has finally also demonstrated the ability to turn a consistent profit.
Yet it wasn't able to match investor expectations in the fourth quarter. The Seattle company's net income more than doubled to $482 million, or $1 per share, from $214 million, or 45 cents per share last year. But that fell far short of the $1.55 analysts expected, according to FactSet.
Part of the shortfall came from costs. Amazon continues to invest heavily in its business, with the result that operating costs jumped 20 per cent during the quarter to $34.6 billion. Amazon said costs increased partly from expanding its Fulfillment by Amazon service for third-party sellers during the busy holiday season. The service takes care of shipping for sellers and allows their products to be eligible for Amazon's Prime two-day shipping program.
"Demand from sellers exceeded even our expectations," CFO Brian Olsavsky in a call with journalists. "All-in-all it's a high-class problem to have."
The holiday quarter is a crucial one for retailers, who post a big chunk of their annual sales during the two month November and December period. Amazon's revenue rose 22 per cent to $35.75 billion from $29.33 billion last year. That figure also fell slightly short of estimates, which averaged to $35.9 billion.
But Neil Saunders, CEO of research firm Conlumino, wrote in a note to investors that he viewed Amazon as one of the "clear winners in the battle for holiday spend," accounting for an estimated 22.6 per cent of total online retail spend during the quarter. Amazon's profitability is "still painfully weak," he wrote, but noted that it's part of a "conscious decision" by the company to plow resources into future growth opportunities.
Another bright spot for the quarter was Amazon Web Services, Amazon's cloud-computing services arm. Revenue jumped 69 per cent to $2.41 billion.
For the current quarter ending in March, Amazon said it expects revenue in the range of $26.5 billion to $29 billion. Analysts surveyed by Zacks had expected revenue of $27.47 billion.
Amazon shares have declined 6.5 per cent since the beginning of the year, while the Standard & Poor's 500 index has fallen slightly more than 7 per cent. In the final minutes of trading on Thursday, Amazon's stock hit $632.20, having more than doubled in the prior 12 months.
