Amazon.com Inc. (AMZN) reported a 36% surge in fourth-quarter sales but still fell short of Wall Street's estimates, sending shares of its pricey stock sharply lower in after-hours trading.
Amazon reported its first-ever quarter with more than $10 billion in sales; however, expectations were high as the company was seen benefiting from consumers increasing the number of purchases made over the Internet this holiday season.
Also weighing on the stock--which trades at more than 50 times expected earnings--were the company's modest margins and lukewarm first-quarter guidance.
The Seattle, Wash.-based ecommerce giant's operating margins for the period were 3.8%--within the company's forecast but below the 4.2% margin analysts were expecting.
Chief Financial Officer Tom Szkutak said in a conference call the company needed to invest in additional infrastructure to support its surging sales, adding that Amazon would continue to invest in 2011.
"We'll have to see how much we invest," he said when asked about plans for 2011.
Amazon shares fell 8.7% to $168.00 in after-hours trading. The stock was up 5.2% during the regular session Thursday and has gained more than 50% over the past 12 months.
"While revenue grew over $3.4 billion in the quarter, net income only increased $32 million, less than a penny for every dollar of revenue growth," said BGC Partners analyst Colin Gillis. "Margin expansion is not guaranteed given the nature of Amazon's business as a discount retailer."
Amazon's fourth-quarter sales rose to $12.95 billion, at the high end of the company's October estimate for sales between $12 billion to $13.3 billion but below the average analyst estimate on Thomson Reuters of $13.01 billion. Excluding effects from currency translation, sales jumped 37%.
Meanwhile, for the first quarter, Amazon is projecting a year-over-year revenue increase between 28% and 39%, the midpoint of which is above the average analyst estimate for 31% growth. Yet, despite the jump in revenue, Amazon is projecting first-quarter operating income to decline between 2% and 34% from the year-ago quarter.
Szkutak said on the company's call that its first-quarter operating income guidance reflects investments to add capacity to support the ecommerce giant's rapid growth.
Amazon has added "a lot of capacity" for its retail operations, third-party merchants and Web services business, Szkutak said.
Last year, Amazon added 13 fulfillment centers to support its retail operations, ending the year with about 52 distribution centers worldwide.
Analysts have questioned whether Amazon's profitability has been hurt by the company's investments in technology, its focus on low prices and the Kindle digital-book-reader, for which the company recently lowered prices and has increased marketing.
In the latest period, Amazon posted a profit of $416 million, or 91 cents a share, up from $384 million, or 85 cents a share, a year earlier. Analysts predicted 88 cents a share.
Gross margin fell to 20.3% from 20.8%.
Sales in the website's catch-all category of electronics and other general merchandise again surged, this time by 60%. Traditional media rose 12%.
The company continued to hold its cards close to the vest on Kindle sales. But Amazon did say that Kindle books have overtaken paperback books as the site's most popular format. The e-reader has been encountering accelerating competition, though Amazon has insisted that devices like Apple Inc. (AAPL)'s iPad appeal to different needs.
For the current first quarter, the company predicted revenue between $9.1 billion and $9.9 billion and operating income between $260 million and $385 million.
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; joan.solsman@dowjones.com
(George Stahl and Scott Morrison contributed to this report.)
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