by Tom Taulli | January 30, 2014 5:43 pm
Ahead of Amazon’s (AMZN) fourth-quarter results, investors pushed up the stock nearly 5%. But the enthusiasm proved to be short-lived, as the company’s fourth-quarter results failed to meet expectations. AMZN stock is off by 4% in after-hours trading, although the initial drop was around 10%.
With a forward price-to-earnings ratio of 154X, investors are betting on hefty growth from the company. So even a slight miss can wreak havoc on AMZN stock.
As for Q4, AMZN stock posted a sales gain of 20% to $25.59 billion, which was in line with the company’s own estimate of $23.5 billion to $26.5 billion. However, the Street was looking for $26.1 billion, hence the drop in AMZN stock.
Amazon earnings also lagged. In the quarter, net income came to $239 million or 51 cents per share. Yet the consensus estimate was for 66 per share — a significant miss for AMZN stock, and amplified by the sky-high valuation.
The holiday season is obviously critical for Amazon. But it looks like the company got hit with some problems, such as late deliveries from carriers like UPS (UPS). As a result, AMZN had to reimburse customers with $20 gift cards. Also, shipping costs (as a percentage of revenues) rose to 4.7% — up from 4.5% in the same period a year ago, further hurting Amazon earnings.
AMZN keeps investing heavily in distribution centers and also has struck a deal with the U.S. Postal Service to provide for Sunday delivery. But for now, delivery seems to be an ongoing issue.
Amazon Prime added 1 million subscribers during Q4, which is good news for AMZN stock. However, Amazon’s media business revenues dropped in both the U.S. and foreign markets. In other words, Amazon customers may still see Prime as a great way to get cheaper shipping rather than a means to access movies and music.
Perhaps most detrimentally, though, Amazon provided a weak outlook for Q1. The company expects revenues of $18.2 billion to $19.9 billion, which barely hits the Street’s estimate of $19.7. Actually, the company said operating income could range from a gain of $200 million to a loss of $200. That’s a pretty big range, indicating lack of confidence.
For the most part, AMZN stock may be weighed down because the company is spreading itself too thin. After all, the company operates in diverse categories like movies, home delivery of groceries and web services. That’s a lot to keep track of, and difficult to optimize.
And according to a report in yesterday’s Wall Street Journal, it looks like the company is looking to branch out yet again. AMZN is reportedly thinking of enabling its Kindle to be a cash register for brick-and-mortar retailers. (Hopefully that new goes over better than its last PR coup — Amazon delivery drones.)
All of these markets have big-time competitors, such as Netflix (NFLX) and Google (GOOG). Can AMZN really have enough bandwidth to be so pervasive?
It may not. If anything, this earnings report may be a sign that the company may need to focus its operations more. Until it manages to do that — and especially if the company keeps branching out — we may see more and more earnings disappointments for AMZN stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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