Amazon shares dropped as much as 10 percent in after-hours trading, after the company’s fourth quarter earnings report missed analyst estimates.
The Internet retail giant posted earnings of $0.51 per share for the fourth quarter of 2013, missing Wall Street’s forecast of $0.66. Amazon also missed on revenue, reporting $25.59 billion compared to estimates from The Street of $26.06 billion.
The fourth quarter holds particular relevance for Amazon, as it covers the busy holiday period. And revenue during the quarter was up – the company recorded its best ever sales for the holiday quarter. Net sales increased 20% from a year earlier to $25.59 billion.
Increasing shipping costs were partly to blame for the company’s failure to hit earnings estimates. Costs associated with deliveries accounted for 4.7 percent of sales in comparison to 4.5% a year earlier. The company also had several problems with delivery over the holidays and was forced to offer refunds and free shipping to customers who were affected. Tom Szkutak, chief financial officer for Amazon said on the company’s earnings call that Amazon added a total of seven fulfilment centers (or distribution centers) net, in 2013. “Certainly we’ll continue to roll out our footprint and we’ll try and make our network as efficient as possible,” said Szkutak, emphasizing how extra distribution centers can help the company offset rising delivery costs.
At the close of trading Amazon stock was up around 5 percent. However, shares quickly fell after earnings were reported, and fell 10.9 percent at one point on Thursday evening after-market.
Amazon again highlighted just how thin its profit margins are, posting net income of $239 million on sales of $25 billion — which is less than one percent of total revenues. For the first quarter of 2014, Amazon has projected its net between a $200 million loss and a $200 million profit. It also forecasts sales of $18.2-$19.9 billion for the first quarter of the year. That range stands mostly below Wall Street estimates of $19.67 billion.
Traders have been comfortable with Amazon’s razor thin profit margins for a long time, but missing revenue estimates in a quarter in which the U.S. reported strong GDP growth appears to have shaken the confidence of some investors.