Nobody was expecting Amazon to have a poor performance in fourth quarter, but the numbers the company recorded are proof that Kindle still hasn’t paid off. As a result, Amazon (AMZN) stocks fell by 7.3 percent.
On Tuesday, Amazon officially published its results for fourth quarter and surprisingly the company had a 58 percent decline in profit. The news comes as a bit shocking, particularly since all analysts were raving how good Amazon is doing in its cut throat competition with Apple.
However, it seems that heavy spending and a major margins expansion have been enough to drag down both Amazon profit and stocks. According to the press release from Amazon, in fourth quarter the company’s profit plummeted to $177 million, or 38 cents a share. Its profits went down spinning if compared with the figures for the same period of 2010, when Amazon recorded $416 million, or 91 cents a share in net income.
Despite the overall grim fourth quarter results, AMZN’s total sales managed to boost by 35 percent, in part thanks to third-party sellers. These retailers use the company’s site to sell their own products and give Amazon a commission. According to the data, outside retailers had sales increased by 65 percent during the holiday season.
Tom Szkutak, Chief Financial Officer for Amazon, said that “trying to predict during a seasonal Q4 is challenging. That third-party increase is great for customers, great for sellers and helped our bottom line”.
But analyst Colin Sebastian with Robert W. Baird & Co., points out that “whenever there’s a mix-shift toward third party, it helps margins, but it reduces revenue”.
As soon as Amazon published its disappointing fourth quarter data, stocks plummeted. In Frankfurt trading, AMZN stocks fell 10.64 euro, down 6.6 percent. In extended trading in the U.S. AMZN shares fell $21.80 to $172.64.
Colin Gillis, analyst at BGC Partners LP in New York, explained that Amazon has made investors feel confident that fourth quarter will bring strong growth and that’s why the results seem so disappointing. “To miss on the top line, that’s what breaks the momentum”, said Gillis.
Amazon said that first quarter operating income may range from a loss of $200 million to a gain of $100 million.