Amazon reported fourth-quarter sales and earnings that fell short of analysts’ expectations. Both revenue and earnings did not meet their expectations. While fourth-quarter revenue increased 22% to $21.27 billion, analysts had predicted revenue of $22.2 billion. Earnings per share fell to $0.21, down from $0.38 in the fourth quarter of last year. Analysts had expected earnings of $0.27 a share. Amazon ultimately lost money in 2012 and predicted that it would have a poor showing in the first quarter of next year as well.
Amazon has teetered between minimal profits and no profits for more than a decade. However, Amazon always seems to be on the cusp of converting its overwhelming online presence into large amounts of cash. Operating margins as a percent of consolidated sales rose to 3.2%, up from 2.7% a year ago. Gene Munster, an analyst with Piper Jaffray, said, “The carrot for Amazon investors is improvements to margin over time. As long as the dream is there, the stock is going to go up.”
Amazon has routinely chosen to reward customers with subsidized shipping and higher discounts instead of raising its margins. In 2005, Jeff Bezos, Amazon’s chief executive, said, “Wall Street gets in a kerfuffle when we lower product prices and invest heavily in the future. So don’t buy our stock — instead buy our products and enjoy our investments.” Tom Szkutak, Amazon’s chief financial officer, said, “Putting customers first is the only reliable way to create lasting value for shareholders.”
Colin Gillis of BGC Partners said, “It’s much easier to sell goods at cost the way Amazon does than sell goods at a 40 percent margin like Apple. Once you’ve trained your customers to buy at cost, it’s difficult to train them away from it.” Mr. Gillis continued, “Who’s going to undercut Amazon? They’re only making half a cent on every dollar. Who can run a business at less profit?”
Jason Moser, an analyst with the Motley Fool and an owner of shares in the retailer, said, “Many investors, myself included, will more than likely watch this story play out for as long as it takes.” He added that the market was “betting a lot on what Amazon hasn’t done yet and betting on the fact that it will do it based on what it’s doing now. Kind of a ‘build it and they will come’ sort of thing.”