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Amazon: We have great cash flow - it flows straight out of our hands

Web bazaar splurges profits, investors snap up shares anyway

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Amazon's shares hit a record yesterday, despite well-disguised but nonetheless concerning full year financial results and fourth quarter profits.

Investors were lapping up the giant etailer's shares after hours, pushing the stock up 8.7 per cent to $260.35. But their enthusiasm was somewhat confusing, as Amazon's yearly figures showed that it was spending much more than it was making.

The ebook-and-other-stuff bazaar enthused about an increase in its "operating cash flow" and a 23 per cent lift in net sales, but its fourth quarter revenue and its earnings per share (EPS) both missed expectations.

The Christmas quarter's $21.27bn revenue was about a billion dollars less than an anticipated $22.23bn, but up from $17.43bn a year earlier. EPS came in at $0.21 instead of $0.27. The winter takings look impressive, but not when the resulting net profit for that quarter is just $97m.

More importantly, Amazon made a net loss for the full year of $39m on $61bn in sales, compared to a net profit of $631m in 2011 on $48bn in takings. This means that its share price to earnings (PE) ratio, a top guide for investors, is actually missing in action - or in financial speak "not meaningful".

The money is mostly going on continued expansion of the business. In the fourth quarter alone, the company spent $2.02bn on property and equipment, including software and website development and splurged another $1.5bn on securities and "other investments".

Some of the firm's cash has to be going on the staff budget, with an extra 7,000 employees on the books in the fourth quarter and a whopping 32,200 hired over the year to add up to a total of 88,400 workers.

Amazon is certainly not in any danger, ebooks is a "multi-billion dollar category" for the Kindle-peddler, up 70 per cent from last year according to chief Jeff Bezos. But its share price is looking pretty high for an expanding firm that is seeing one of its other big categories, physical books, dwindling fast.

Zacks Investment Research firm said it was neutral on Amazon's shares, meaning it reckons that investors should hold off for now.

"It is not clear how long the investment phase will continue, which makes us incrementally cautious," it said in a report on the firm. ®

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