Amazon earnings up, but disappointing

Internet giant Amazon.com Inc. missed analysts’ expectations for its fourth-quarter profit as it cost them more to get customers’ orders to them.

Bloomberg’s Adam Satariano had this straightforward story:

Amazon.com Inc. (AMZN:US), the world’s largest Web retailer, reported fourth-quarter revenue and profit that trailed analysts’ estimates after sales growth slowed outside the U.S. and holiday shipping costs surged.

Net income was $239 million, or 51 cents a share, the Seattle-based company said today in a statement. Analysts on average had projected profit of 69 cents a share, according to data (AMZN:US) compiled by Bloomberg. Revenue rose 20 percent to $25.6 billion, trailing the $26.1 billion average estimate.

Amazon’s dominance of U.S. e-commerce isn’t translating globally, with international sales growth slowing to 13 percent in the quarter from 21 percent a year earlier. Meanwhile, expenses are climbing as Chief Executive Officer Jeff Bezos pumps money into warehouses to speed shipments, a cost Amazon may try to offset as it considers raising the price of its Prime delivery service for the first time, the company said today.

David Streitfeld led his story in the New York Times with the news that Amazon is planning to raise shipping fees:

Amazon investors might have finally heard the news they have been waiting for: The retailer is raising shipping fees.

Amazon has 237 million active customers but as a general rule makes almost no profit. Thursday’s announcement that the company was considering raising prices by as much as 50 percent on its $79 Prime shipping program could mean $500 million for its skimpy bottom line.

“This is the first time we’ve ever seen Amazon flex its muscles in terms of pricing,” said Gene Munster, an analyst with Piper Jaffray. “It’s hugely significant.”

The news came in a conference call when the Seattle-based retailer discussed its fourth-quarter earnings. The announcement helped deflect disappointment that Amazon’s torrid growth might be slowing.

Amazon has been pouring money into new ventures, ranging from new warehouses to free videos for Prime subscribers. The eternal question is when it will turn all that expansion into profit.

Raising fees for the estimated 25 million Prime subscribers indicates that moment might be sooner, rather than later.

The Wall Street Journal’s Greg Bensinger pointed out that expenses have been weighing on the company:

The company ramped up expenses during the quarter, hiring 70,000 temporary workers at its warehouses and distribution centers in expectation of big sales gains. But the holiday season was marred by shipping problems at United Parcel Service Inc. that caused some customers to get their packages after Christmas, prompting Amazon to issue $20 purchase credits. (Please see related article on page B5.)

Its shares were down about 5%, or $20.01, in after-hours trading, after falling as much as 10%. The shares gained 4.9% to $403.01 at 4 p.m. on the Nasdaq Stock Market. The stock was up 63% last year.

“They have gotten a lot of hall passes on profitability; maybe that run is over,” said Colin Gillis, a BGC Partners analyst. “They’re selling widgets and they’re doing it basically at cost; you’ve got to sell a lot of widgets if you’re not making money on them.”

Investors’ faith in Amazon has relied in part on consistent sale gains fueling the company’s lavish spending on warehouse construction and secretive internal projects that it has indicated will yield bigger returns in the future.

The Reuters story by Bill Rigby and Edwin Chan led with Amazon’s expectation for a loss:

Amazon.com Inc missed Wall Street’s estimates for the crucial holiday period and cautioned investors about a possible operating loss this quarter as shipping costs climb, pushing its shares down more than 5 percent.

The world’s largest online retailer faced lofty expectations going into one of the most heavily competitive holiday seasons in years, with retailers vying to out-do each other with steep discounts. It was a contest that many retail industry executives have blamed on Amazon.

The Seattle-based company, which has spent freely to forge new markets in cloud computing and digital media, is experiencing slower growth at home after years of rip-roaring expansion, and its international business continues to underperform.

Amazon expects operating results for the current quarter to range from a $200 million loss to a $200 million profit, compared with a $181 million profit a year ago.

To cover rising fuel and transport costs, the company is considering a $20 to $40 increase in the annual $79 fee it charges users of its “Prime” two-day shipping and online media service, considered instrumental to driving online purchases of both goods and digital media.

Amazon has worked hard to become everyone’s go-to Internet retailer. They’re even talking about pre-shipping items to people based on what’s in their shopping carts. The fact that it might not even make a profit is telling. It has sacrificed shareholder value for market share, which may not pay off in the long run.