Record profits but Amazon's shares plunge 13%

A worker sorting products at an Amazon centre in Wroclaw, Poland, on Dec 3, 2015.
A worker sorting products at an Amazon centre in Wroclaw, Poland, on Dec 3, 2015. PHOTO: REUTERS

NEW YORK (REUTERS) - Investors came down hard on Amazon.com Inc on Thursday after the world's No 1 online retailer reported holiday quarter profit well below Wall Street's estimates, raising concerns that the stock's recent spell of growth is over.

The company's shares plunged 13 per cent after hours on Thursday (Jan 28), following a 9 per cent increase in regular trading. They are still up 80 per cent over the past 12 months.

"The growth story that investors were looking for... clearly Amazon has not been able to live up to the hype, said Adam Sarhan, Chief Executive of Sarhan Capital. "As far as I am concerned, Amazon is now out of the FANG group," he said, referring to the group of high-growth tech stocks that includes Facebook, Netflix and Alphabet, formerly known as Google.

Amazon reported its highest-ever quarterly profit, and its third consecutive profitable quarter for the first time since 2012. Still, there were concerns over its margins.

"By comparative retail standards, Amazon's level of profitability is still painfully weak," said Neil Saunders, CEO of retail analyst firm Conlumino, who is still positive on Amazon's prospects. "For every dollar the company takes, it makes just 0.75 of a cent in profit."

Amazon's fourth-quarter net profit rose to US$482 million, or US$1.00 per share, in the quarter ended Dec 31, up from US$214 million, or 45 cents per share, a year earlier.

That figure was held back by rising operating costs and slowing growth in its cloud services business. It was well below analysts' average forecast for profit of US$1.56 per share, according to Thomson Reuters I/B/E/S.

Net sales rose 21.8 per cent to US$35.75 billion, but missed analysts' expectations of US$35.93 billion.

Excluding a US$1.2 billion unfavourable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 26 per cent compared with the fourth quarter of 2014.

Amazon chief financial officer Brian Olsavsky said foreign exchange had an unexpectedly large impact, but overall the company had "a very strong quarter and a strong year."

The company's total operating expenses surged more than 20 per cent to US$34.64 billion in the fourth quarter.

Amazon has historically sacrificed profit, instead doubling down on investment in growth areas like Prime and AWS. Amazon founder Jeff Bezos has called these "big bets" that are the cornerstone of the online retailer's growth.

As a sign of its underlying growth, the Seattle-based company now employs 230,800 staff, many of them in its warehouses, up 50 per cent from 154,100 a year ago.

Amazon has been spending on rolling out several new services for members of its US$99-a-year Prime loyalty program, including one-hour delivery and original TV programming, to attract customers in a highly competitive online shopping market.

The company said on Thursday that Prime membership grew 47 per cent in the United States.

Amazon dominates the worldwide retail e-commerce market, which according to eMarketer totaled US$1.67 trillion last year and is expected to grow by 22 per cent this year.

Amazon's Prime program is estimated by some analysts to have around 50 million members worldwide. In a decade since its launch, Prime has become an engine of growth for Amazon and an important testing ground for new offerings like one hour delivery and ambitious original TV programming.

Amazon forecast sales for the first quarter of between US$26.5 billion and US$29 billion, or up between 17 per cent and 28 per cent compared to the same quarter last year. It forecast operating income between US$100 million and US$700 million, compared to US$255 million in the first quarter last year.

Analysts had forecast US$27.6 billion in sales and US$400.3 million in profit.

"The stock is getting killed because the Street is too high on next year," said Wedbush Securities analyst Michael Pachter.