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Investors pummel Amazon for Q4 miss

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Shares of Amazon.com tumbled in late trading as investors reacted to a big fourth quarter earnings miss.

On the surface, Amazon's financial figures look grand. The online retailer reported a 31 per cent surge in sales to $2.54bn in the fourth quarter. Amazon earned $347m, or 82 cents per share, during the period compared to $73m, or 17 cents per share, in earnings one year earlier.

But the majority of that profit came as a result of a $244m onetime tax break. Without that benefit, Amazon would have posted a profit of $149m or 35 cents per share. Analysts had been looking for earnings per share of 40 cents. That miss had investors scrambling to unload Amazon shares with its price sinking more than 13 per cent to $41.88 in the after-hours markets, at the time of this report.

The earnings shortfall wasn't the only concern for analysts, who also griped about falling margins.

Chris Baggini, a manager of the Gartmore Growth Fund, told Reuters the margins were a "disaster." "They're selling more stuff and making less profit margin on it," Martin Pyykkonen of Janco Partners also told the newswire.

Amazon suffered from a string of embarrassing technical glitches during the peak of the holiday shopping period. Analysts noted that Amazon was also hurt by heavy price competition, which forced it to up free delivery offers in order to compete. Without exchange rate benefits, Amazon's sales would have come in only 26 per cent higher as opposed to the reported 31 per cent gain.

Amazon today kicked off a new membership program called Amazon Prime to try and lure customers over the long-term. People can pay $79 per year to get unlimited, express two-day shipping. Members will also gain overnight shipping for $3.99 per order.

"Amazon Prime is 'all-you-can-eat' express shipping," said Jeff Bezos, CEO at Amazon. "Though expensive for the company in the short-term, it's a significant benefit and more convenient for customers. With Amazon Prime, there's no minimum purchase to think about, and no consolidating orders -- two-day shipping becomes an everyday experience rather than an occasional indulgence."

For the full year, Amazon posted revenue of $6.92bn - up 31 per cent from the $5.26bn reported in 2003. Pro forma net income, excluding the tax benefit, came in at $395m versus $256m last year.

It expects first quarter sales to be between $1.80bn and $1.95bn. ®

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