Feeds

Amazon blames grinch that stole Christmas

With profits falling, analysts question e-tailing myth

Boost IT visibility and business value

Amazon.com became the fourth of the internet giants to report lower than expected profits this week. Despite gaining revenue over the previous Christmas, Q4 profits were down, and the company predicted lower profits still for the current quarter.

More ominously, Amazon says it expects to have lower profits for the third successive year, prompting analysts to pose some awkward questions. One even wondered if the supposed efficiencies of internet-only commerce are mythical.

But first, the numbers.

The retailer reported $2.98bn in sales for Q4, with net income at $199m, compared to $347m in Q4 2004. Sales for the year rose 23 per cent to $8.49 billion with net income of $359m, down from $588m for 2004.

US and Canada accounted for $1.68 billion, although oversees sales didn't grow as fast as Amazon would have liked - accounting for 45 per cent of revenue, barely up from 2004. Twenty-eight per cent of sales came from third party merchants.

The company predicted a profit of between $70m and $105m for the current quarter, with sales growing between 16 per cent and 23 per cent for the full year, compared to 2005.

CEO Jeff Bezos said the company was using its increased cash flow to invest, particularly in its A9 search engine, and he admitted the company's $79 Prime subscription package, which gives subscribers free shipping for a year, was proving expensive.

Analysts even queried Amazon's growth, with JP Morgan's Imran Khan (no, not that Imran Khan) suggesting Amazon may be losing market share.

Prudential's Mark Rowen wondered what was more efficient about an e-tailer, compared to a bricks and morter retailer with real estate burdens, when expenses were so much higher than Wal-Mart.

"Why is it that we are not seeing efficiency if, in fact, the model is more efficient?"

Ouch.

Bezos again stressed Amazon.com needed to invest for the future, in particularly digital services, adding that "if we were totally optimizing our cost structure for a kind of a steady-state business, you would see a different cost structure."

This prompted a withering piece of sarcasm from one analyst, Safa Rashtchy of Piper Jaffray. who told the WSJ: "It seems like Amazon is a company which will perpetually be in investment mode."®

Maximizing your infrastructure through virtualization

More from The Register

next story
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Bose says today is F*** With Dre Day: Beats sued in patent battle
Music gear giant seeks some of that sweet, sweet Apple pie
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Application security programs and practises
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Securing Web Applications Made Simple and Scalable
Learn how automated security testing can provide a simple and scalable way to protect your web applications.