Friday, January 28, 2011

Amazon Had a Fab Fourth Qtr & Stock Drops

Yesterday's Publishers Weekly had an excellent article about Amazon's excellent autumn here:
The top line was stellar with total sales for the year up 40%, to $34.2 billion, while net income rose 28%, to $1.15 billion. In a prepared statement chairman Jeff Bezos said the company passed two milestones in the fourth quarter--its first time sales topped more than $10 billion in a quarter with actual sales hitting $12 billion; and “after selling millions of third-generation Kindles during the quarter, Kindle books have now overtaken paperback books as the most popular format on,” even while sales of paperbacks rose.
Despite this glowing news, the stock nose-dived in after-hours trading. The stock price dropped more than 10%, losing $17.15 to $167.30. I found this puzzling given that Amazon had exceeded its forecast of per-share profit of 88 cents on sales of $12.99 billion by earning a per-share profit of 91 cents on sales of $12.95 billion.

To find out why the stock had dropped, I trolled the Internet. The Seattle Times had a story here that helped explain investors' reaction:

One concern: Amazon, which released its results after the closing bell, gave a first-quarter outlook that fell below Wall Street's prediction.

Another concern: Amazon's operating costs rose 38 percent from a year ago, squeezing profit margins ...

Stifel Nicolaus analyst Jordan Rohan ... [said]: "Amazon did exactly what it told investors it would do ... What does that tell you? It tells you that expectations got ahead of themselves."

Along the same lines, BGC Partners analyst Collin Gillis sees Amazon shares as overvalued and rates Amazon stock as a "sell."

Amazon webcast the conference call. If you want to listen (and view a slide presentation), go here.

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