Commentary

Amazon Disappoints Despite Record 22% Sales Gain In Q4

Like an Amazon clothing purchase that turned out to be two sizes too big, Wall Street quickly processed a return yesterday when the online retailer’s record profit for the holiday-season quarter didn’t fit expectations.

“The online retailer and cloud services company said it made $482 million in the fourth quarter, or $1 a share, more than double the year-ago quarter, but a glaring shortfall from the $1.58 per share expected by analysts polled by S&P Capital IQ,” reports Elizabeth Weise for USA Today. “Sales for the December quarter gained 22% to $35.7 billion, just shy of the $35.98 billion forecast by analysts.”

But depending on whom you read and when their story was filed, shares dropped from 10% to nearly 15% in extended trading following the news.

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“The company was one of the big growth stories among technology stocks in 2015, more than doubling its market value to over $300 billion last year and easily outperforming other tech giants like Alphabet, Apple and Facebook,” Greg Bensinger reports for the Wall Street Journal. “With its $99-a-year Prime unlimited shipping program, Amazon has become a dominant force in retail and has demonstrated it can quickly gain market share in new businesses as diverse as cloud computing and hot-food delivery.”

Yesterday’s demonstration of how quickly it also can lose value “just reflected an enthusiasm that got out of hand,” writes David Streitfeld in the New York Times. “This was more of an expectations correction than a fundamentals correction,” RBC Capital Markets analyst Mark Mahaney tells him. “There’s nothing in the numbers that would mark a dramatic change in Amazon’s growth or profit profile.”

“At least one bright spot? Amazon’s AWS cloud computing business met expectations with $2.4 billion in revenue and continues to show increased margins. The unit’s operating profit margin was 29%, up sequentially from 25% in the third quarter, 21% in Q2 and 17% in Q1,” reports Jason Del Ray for Re/code.

Amazon says Prime memberships grew by 51% last year “and a Consumer Intelligence Research Partners study recently revealed that just under half of all U.S. households subscribe to Prime,” CNN Money’s David Goldman points out, which keeps customers returning to the site.

“For example, Amazon said Prime members doubled the number of hours they spent streaming videos on Amazon's Prime Instant Video service over the past year. Streaming on Amazon's Prime Music more than tripled over last year. And its same-day shipping service Prime Now expanded to 25 different cities,” Goldman writes.

Indeed, there’s still plenty of unconquered territory in boring old retail. 

“By the end of 2016, online retail sales will be roughly $414 billion, according to eMarketer, a scant 7.8% of all retail sales. In other words, that leaves somewhere in the neighborhood of $5 trillion in traditional retail sales in play,” writes Chase Purdy for Quartz. “Something tells us Bezos and Amazon will get more than their fair share of it.”

“Twenty years ago, I was driving the packages to the post office myself and hoping we might one day afford a forklift. This year, we pass $100 billion in annual sales and serve 300 million customers,” Bezos says in a news release.

Not that the Jeff Bezos household is going on an austerity budget or anything, but Forbes’ Kate Vinton points out that the hit was big enough to cause the Amazon founder and CEO to lose his ranking as the fourth richest person the world.

“As of 5:00 p.m. ET, Bezos was worth $49.8 billion, barely holding onto his place as the world’s fourth richest person. By 5:30 p.m. ET, Bezos had lost another $800 million, which puts him in fifth place behind Carlos Slim Helu of Mexico, who is now the fourth richest person in the world with a net worth of $49.6 billion,” Vinton writes.

Meanwhile, lest you think Bezos & Co. is going to focus on profit rather than further expanding its footprint into every corner of consumers’ lives, the New York Postreports it is “prepping a Spotify-killer,” according to several music sources.

“The e-commerce giant has held meetings in the past few weeks to discuss licensing tunes for a full-blown subscription music service that would ape streaming music market leaders Spotify and Apple Music,” writes Claire Atkinson, who points out that Prime members currently have access to about 1 million songs including the Beatles playlist and “Panic! At the Disco.” The new streaming service would have its own monthly fee.

Speaking of panic, will it be lights out for everyone else? Or anotherLivingSocial

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