Amazon Q4: Kindle strong, but digital media disappoints
Wall Street was prepared for profits drop as retailer chases digital and cloud growth, but shocked by revenue shortfall
Published: 1 February, 2012
READ MORE: Financial | Amazon | Mobile Content | Tablet
Amazon's fourth quarter sales and its outlook disappointed Wall Street, but not for the reason many had expected a few weeks ago. While there had been fears about volumes and margins for the Kindle Fire, the Kindle device family trebled its sales, while the returns on its huge digital media investment were slower than anticipated.
The retailer reported earnings of $177m or 38 cents per share in Q411, on revenue up 35% year-on-year to $17.43bn. But while the earnings were ahead of Wall Street forecasts, they had looked for revenues of $18.25bn and net income was down a steep 57% year-on-year. The shortfall was taken to mean that the giant's investments in digital content and web services were taking longer than hoped to pay off. The firm admitted it had got less digital media revenue than anticipated, especially in the video game sector.
For full year 2011, Amazon reported earnings of $631m or $2.17 a share, on revenue up 41% to $48.98bn. The outlook for the current first quarter also fell short of expectations. Amazon projected Q112 sales between $12bn and $13.4bn with a wide profit range, from an operating loss of $200m to a profit of $100m.
On the analyst call, CFO Tom Szkutak reiterated previous points that Amazon's expansion of its digital and cloud business would involve higher costs for a period. He said: "Our Q4 2011 capital expenditures were $550m. The increase in capital expenditures reflect additional investments in support of continued business growth including investments in technology, infrastructure including Amazon Web services and additional capacity to support our fulfillment operations."
The markets are used to stronger growth from Amazon, Colin Gillis of BGC Partners told Bloomberg. "To miss on the top line, that's what breaks the momentum," he said. Other commentators agreed that the sales slowdown is the real negative, rather than the lower profits, which were expected - CEO Jeff Bezos has been explicit that he will take a hit on margins in order to chase growth, with tactics like free shipping to Prime subscribers and low cost Kindle devices. Both these strategies generate loyalty and increased purchasing in the medium term. Amazon, as usual, did not give hard numbers for Kindle sales.
More FINANCIAL News
More AMAZON News
More MOBILE CONTENT News
COMMENTS
Carrier Broadband Performance: Africa & Middle East
Carriers are using mobile broadband as their weapon of choice in the fight against the commoditization of voice and falling ARPU. This...
Voice over LTE: Market Analysis and Forecasts
VoLTE offer unique advantages in lowering a carrier's voice infrastructure economics and promises to improve voice quality, device...
Satellite Phones: Will Dual Mode Help the Phoenix Rise from the Ashes?
Satellite phones have followed an arduous path since their much-hyped launch more than a decade ago. The hype was followed by an e...
